Challenges and opportunities. In the Angolan Insurance and Pension Funds Sector. April

Transcription

1 Challenges and opportunities In the Angolan Insurance and Pension Funds Sector April

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3 Index Introduction 1 Introductory message from the President of ARSEG Message from the President of PwC Executive summary Brief history of insurance in Angola Interviews with market operators 4 Interviewed companies Insurance Companies Pension Fund Management Companies Challenges and opportunities in the insurance and pension funds market in Angola 5 56 Macroeconomic environment 6 Global Macroeconomic Environment Macroeconomic Environment of Angola Pension Funds 7 Global Africa Angola: Introduction Insurance Sector in Angola Pension Funds Figures and indicators 8 Insurance Companies Pension Fund Management Companies Views of PwC Scope and Methodology Final considerations Annexes 12 Financial statements of Insurance Companies Datasheet ARSEG PwC 3

4 1 Introduction Dr. Aguinaldo Jaime Chairman of the Board of Directors of ARSEG It is with great satisfaction that ARSEG the Angolan Agency for Insurance Regulation and Supervision is publishing this Study on the Insurance and Pension Funds Sector in Angola, covering the years 2011, 2012 and It describes the economic, financial and asset development in the sector as well as the context of the national and international financial and economic environment. As the study shows, the Angolan financial system, in general, and the insurance, insurance intermediation and brokerage, and pension funds sector, in particular, face enormous challenges at a time when the Angolan economy is suffering from the effects of another external shock caused by the sharp drop in the oil prices in the international market. Therefore, it is clear that the diversification of the economy continues to be, now more than before, at the centre of the economic policy priorities of the Angolan government, given the huge share of the oil sector in Angola s GDP. In this context, it is necessary to set up the economic, institutional and regulatory conditions so that the institutional investors, namely the insurance and pension funds companies, can make available to the financial system the medium and longterm funds which are critical for the sustainable financing of the economy and the success of the economic diversification policy. 4 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

5 Although the insurance and pension funds sector has witnessed, in recent years, a rapid and sustained expansion by December 2013, there were registered 15 insurance companies, 32 insurance and brokerage intermediaries, and 351 individual intermediaries, while today the numbers are 17, 36 and 351, respectively the sector still has a huge potential to grow, as it is amply demonstrated by the GDP penetration rate of insurance, which stands at 0.82%, and that of pension funds, at 0.55%, in Thus, it is important that the sector continues its path of efficient, sustained and balanced growth. This will be possible only through a strong alliance between the government, represented by the Executive and ARSEG, and the sectorial players, which is to respect the roles, rights and duties of each player. Despite the adverse effects of the above-mentioned external shock, the Angolan government has publicly reaffirmed its commitment to maintain and deepen macroeconomic stability, an essential precondition for a sound and efficient financial system. On the other hand, the institutionalization of CMC (Angolan Capital Markets Commission) and the launch of BODIVA (Angolan Stock Exchange) will provide households and businesses with alternative forms of financing of assets and savings, beyond the traditional products offered by the banking market. 11,25% In 2013, the Insurance and Pension Funds market grew by 11.25% and -2.36% respectively. Turning to the specific challenges facing the insurance and pension funds sector, we wish to emphasize the following: the spread of the insurance culture; creation of a fair competition among all operators in the sector; restructuring of insurance products and services, namely in oil and gas, agriculture and import of goods; creation of tax incentives to stimulate medium and long-term savings; combating fronting practices; development of comprehensive programmes of technical and vocational training for the whole sector; creation of the Angolan reinsurance company; creation of the insurance Ombudsman; and expansion of micro insurance and life insurance products. This study provides an account of these and other challenges and of the specific responsibilities of ARSEG in the process of consolidating a supervisory model, prudential and behavioural, on-site and off-site, that is up to the task of meeting the challenges of an expanding market. The ultimate goal is the adoption of universal best practices, as recommended by CISNA Committee of Insurance, Securities The study also enhances the information available on the financial system, in general, and the insurance and pension funds, in particular, relative to the size and structure of the market, its constraints and challenges. The data will certainly provide a useful tool for investors, consumers and researchers. and Non-Banking Financial Authorities, IAIS International Association of Insurance Supervisors, and IOPS International Organization of Pension Supervisors, so that the Angolan market becomes solid, robust and sound, safeguarding the legitimate interests of all stakeholders, especially those in more vulnerable situations. I would like to thank all those who made this initiative possible, namely the insurance and pension funds market operators, all interviewees, ARSEG management and staff members, and, last but not least, PwC, ARSEG s partner in this study we are proud to present. I thank you very much. ARSEG PwC 5

6 Introdução It is with great satisfaction that PwC has worked with ARSEG to produce this study on the insurance and pension funds sector in Angola. José Pereira Alves President of PwC Angola, Cape Verde and Portugal We would like to thank ARSEG for the trust placed in PwC for the promotion of this joint initiative, which enhances the status of a very important sector for Angolan society, one of dynamism and growth. We also thank the Angolan insurance companies and pension fund management companies for their response to this challenge. Their contributions have undoubtedly enriched the study. This resulted in the production of a study on the sector which is an important tool for appraisal of the insurance and pension funds industry in Angola, not only quantitatively, but also from a qualitative perspective. In addition to including financial information as at 31 December 2013, and comparative periods of 2012 and 2011, the study includes a series of interviews with several operators who have given their views on a range of matters related to the insurance and pension fund industry s future challenges. Thematic analysis of the challenges and opportunities of the insurance and pension funds sector is particularly timely given the recent creation of ARSEG and the new management team that has taken up its role and which will play an active role in the supervision of the insurance and pension funds industry. Analysis of the challenges and opportunities of the insurance and pension funds sector is particularly timely given the recent creation of ARSEG. The study includes interviews with several market participants, which made it possible to identify areas of intervention and discussion with a view to pursuing initiatives that enhance the normal operation of the market. Several challenges were identified by the operators: the need to raise awareness in Angolan society of a culture of insurance and savings, to enable an increase in the relative weight of insurance and pension funds in GDP; change in regulation and tax law; attraction, training and retention of qualified human resources and the development of distribution channels, among others, in the context of a diversified market combining maturity and solidity with youth and volatility. 6 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

7 Introdução During the period under review (2011, 2012, 2013), although the Angolan economy grew, it remained highly dependent on the petrochemical industry, despite embryonic signs of development in other sectors. Of course, it is envisaged that the insurance and pension fund sectors can continue to attract the interest of investors. For PwC, the implementation of a joint initiative of this significance is part of its mission to contribute to the development of the Angolan economy through the creation of trust between economic actors in different sectors of the economy in this case, the insurance and pension funds sectors. We believe in the development potential of this sector and we have therefore assigned qualified staff in order to contribute to this objective as part of our auditing and consulting activity. We reiterate our gratitude to ARSEG and to all insurance and pension fund sector operators that made the preparation of this study possible. We hope it will prove useful and meet expectations. It is envisaged that the insurance and pension fund sectors can continue to attract the interest of investors. ARSEG PwC 7

8 2 The Executive summary study on the insurance and pension funds sector in Angola aims to provide readers with two forms of analysis qualitative and quantitative. The qualitative analysis includes consultation, in interview or comment format, with a range of operators in the insurance and pension funds market in Angola. We sought to gather views and opinions on a specific subjects, in particular on the challenges and opportunities facing the industry in Angola. The quantitative approach was based on the financial information made available to ARSEG and the use of other external sources. The aim was to compile business figures and indicators on this industry, both with regard to Angola and internationally. In more detail, the main points of this document address: 3 Page. 12 This chapter includes a brief historical review of the Angolan insurance market which is nearly a century old. 8 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

9 4 Page. 16 The top managers of the main insurance and pension fund management companies operating in the Angolan market their views, in individual interviews, on the main challenges and opportunities that they foresee. Changes, at regulatory or tax level, the introduction of new practices and initiatives, public awareness of insurance, among others, are some of the ideas conveyed. 5 6 Page. 56 Page. 58 The insurance and pension fund sectors are analysed by the President of the Board of Directors of ARSEG, Dr Aguinaldo Jaime. This is the regulator s view on the industry s current situation and the challenges that it faces. The macro-economic environment is addressed, from a global and local perspective, identifying some of the factors that influence the World and Angolan economies, respectively. The World economy is showing some signs of recovery, especially for economies going through periods of adjustment. Global wealth generated remains roughly the same as Globally, there are still risks that may jeopardize sustainable development. The Angolan economy grew more slowly in 2013 than in Efforts to diversify the economy are ongoing, but the country s dependence on the oil industry and its behaviour is still significant and is therefore a constraint on its development. ARSEG PwC 9

10 Executive summary Page. 86 Page. 134 Page. 146 Focusing on the insurance and pension funds sector, financial information and business indicators at World, African and Angolan levels are analysed. At a world level, we saw modest growth in global output, driven by non-life insurance, with distribution by geographical area very similar to previous years. The rate of penetration in world wealth and the density index remained similar in 2011, 2012 and The African continent (with the exception of South Africa, whose situation and maturity are already quite different from other African countries) including Angola, is recording good growth levels although the economic situations in each country are highly specific, not very mature, with penetration and insurance density indices that are still not very significant. We present the key data from the financial statements of insurance companies and pension fund management companies. The figures are presented consolidated by entity at 31 December, 2013 and 31 December Business indicators were also included to provide a more complete analysis. In the context of the underline theme of the study, PwC insurance sector experts give their views on the challenges and opportunities. The main aspects highlighted relate to financial reporting, the distribution of insurance in Angola and the importance of tax reform for the sector. 10 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

11 Executive summary 10 Page Page. 154 Explains the methodology used in the study for the readers benefit. As a final note at the end of the study, ARSEG expresses its final considerations thanks to all participants and highlighting its contribution to the sector. ARSEG PwC 11

12 3 Brief history of insurance in Angola Insurance activity emerged in Angola in 1922 with the establishment of a branch of the insurance company Companhia de Seguros Ultramarina. In 1948, the Angolan Insurance Industry Audit Service was created and later evolved into the then Credit and Insurance Inspectorate. At the end of the colonial period, there were 26 Insurance Companies in Angola whose market structure was as follows: a) 22 Portuguese insurance companies, of which 8 had their headquarters in Angola; b) 4 non-portuguese insurance companies. At that time, the 26 insurance companies employed about 1200 workers and their portfolio volume was more than 53 million Escudos. On 2 August, 1975, a historic moment for the country, the Transitional Angolan Government published Order No. 68/75 of the Ministry of Planning and Finance (BO No st series), creating the Angolan Insurance Industry Coordination Commission Believes that the first fund is one advocated by Bismarck, in Germany in In Angola there were no pension funds in the colonial era. Instead, there was a type of welfare provision similar to the mutual associations of today. These included entities such as Montepio and other social insurance funds. Indeed, the change in the Angolan insurance market resulted in the 26 companies operating in Angola in the colonial period, for historical reasons of nationalism and to ensure their continuity and development, being absorbed into the newly created National Insurance Company of Angola - ENSA, UEE, thus establishing a state monopoly in this sector, by Decree No. 17/78 of 1 February. 12 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

13 A few months later, several ministerial decrees were issued establishing compulsory insurance policies and requiring them to be taken out with ENSA. Thus, for example, Decree No. 56/78 of 18 August, of the Ministry of Industry and Energy created mandatory Fire, Worker s Compensation and Civil Liability insurance; Decree No. 32/79 of the Ministry of Domestic Trade created mandatory Transported and Warehoused Goods insurance; Decree 87/79 of the Ministry of Fisheries created the same types as those of the Ministry of Industry, plus Hull and Machinery insurance. In 1989, the Council of Defence and Security, through Decree No. 9/89 of 15 April, established the compulsory insurance of oil and gas research and production activities in Angola. With the structural reform of the economy that began in 1987, through the Economic Recovery and Finance (SEF) Programme, the Government decreed that insurance should not remain in the hands of the State through Law No. 10/88, of 2 July, the Economic Activities Law, Law No. 13/94 of 2 September and Law of Limitations of Sectors of Economic Activity, which revoked the first law. To this end, a programme for the adaptation of the sector was devised and, from 1998, legislation that led to the opening of the insurance and pension funds market began to be approved. After nine years, the Insurance Supervision Institute (ISS) was replaced by the Angolan Insurance Regulation and Supervision Agency (ARSEG), established by Presidential Decree No. 141/13, of 27 September, with a Board of Directors under the supervision of the Minister of Finance, to provide a more workable response to the challenges of the sector, given that it is a financial sector regulation and supervision body, together with the National Bank of Angola (BNA) and the Capital Market Commission (CMC) ENSA was based in Luanda and operated in 14 provinces, not including Bengo, Kuando Kubango and Cunene. Of these 14 branches, 8 were destroyed by the post-election war of 1992 and about 72 employees who worked there were dismissed, which restricted ENSA s operations to the provinces of Luanda, Cabinda, Kwanza Sul, Benguela, Namibe and Huíla. Law No. 1/00 of 3 February, the Basic Insurance Sector Law, liberalized the insurance and pension funds market. The Insurance Supervision Institute (ISS), established by Article 32 of Decree Law No. 4/98, which approves the Organic Statute of the Ministry of Finance, was governed by the principles of administrative and financial autonomy, whose general objectives, tasks and organization were approved by Decree No. 63/04 of 28 September. The sector currently has 17 insurance companies operating in all lines of service of Life and Non-Life, with about 93 branches across the country. Additionally, the market has about 35 intermediary companies and about 340 individual intermediaries. Compulsory Worker s Compensation Insurance was approved by Decree No. 53/05 of 15 August, Civil Liability Car Insurance was approved by Decree No. 35/09 of 11 August and aviation, air transport, aeronautical infrastructure and ancillary services obligatory civil liability insurance were approved by Decree No. 09/09 of 3 June. ARSEG PwC 13

14 Brief History of insurance in Angola In 2014, the Angolan insurance market included 17 insurance companies and 5 Pension Fund Management Companies, according to a list provided by ARSEG, listed below in their order of establishment: Insurance Companies 1 - ENSA SEGUROS DE ANGOLA, S.A. (Decree No DR first series No. 98 / Addendum dated 6 December, 2002, Certificate No. 01/ISS/MF/02 dated 6 December, 2002) 2 - AAA SEGUROS, S.A. (DR 3 series No. 54 dated 22 December, 2002, Certificate No. 02/ ISS/MF/01 dated 15 January, 2001) 3 - NOSSA SEGUROS, S.A. (DR 3 series No. 2 dated 5 January, 2005, Certificate No. 03/ISS/MF/05 dated 22 April, 2005) 4 - GA ANGOLA SEGUROS, S.A. (DR 3 series No. 97 dated 15 August, 2005, Certificate No. 04/ISS/MF/05 dated 20 September, 2005) 5 - A MUNDIAL SEGUROS, S.A. (DR 3 series No. 33 dated 15 May, 2006, Certificate No. 05/ISS/MF/06 dated 02 June, 2006) 6 - GLOBAL SEGUROS, S.A. (DR 3 series No. 60 dated 17 May, 2006, Certificate No. 06/ISS/MF/06 dated 2 June, 2006) 7 - GARANTIA SEGUROS, S.A. (DR 3 series No. 105 dated 31 August, 2007, Certificate No. 07/ISS/MF/08 dated 5 August, 2008) 8 - CONFIANCA SEGUROS, S.A. (DR 3 series No. 236 dated 16 December, 2008, Certificate No. 08/ ISS/MF/09 dated 13 January, 2010) 9 - UNIVERSAL SEGUROS, S.A. (DR 3 series No. 121 dated 1 June, 2009, Certificate No. 09/ISS/MF/10 dated 27 December, 2010) 10 - TRANQUILIDADE - CORPORACAO ANGOLANA DE SEGUROS, S.A. (DR 3 series No. 112 dated 28 December, 2009, Certificate No. 10/ ISS/MF/10 dated 31 July, 2012) 11 - TRIUNFAL SEGUROS, S.A. (DR 3 series No. 242 dated 22 December, 2009, Certificate No. 11/ ISS/MF/11 dated 6 August, 2011) 12 - MANDUME SEGUROS, S.A. (DR 3 series No. 242 dated 16 December, 2011, Certificate No. 12/ ISS/MF/12 dated 18 May, 2012) 13 - PROTTEJA SEGUROS, S.A. (DR 3 series No. 104 dated 1 June, 2012, Certificate No. 13/ISS/MF/12 dated 13 November, 2012) 14 - SUPER SEGUROS, S.A. (DR 3 series No. 178 dated 14 September, 2012, Certificate No. 14/ ISS/MF/13 dated 15 March, 2013) 15 - PRUDENCIAL SEGUROS, S.A. (DR 3 series No. 98 dated 24 May, 2012, Certificate No. 15/ISS/MF/13 dated 24 May, 2013) 16 - BONWS SEGUROS, S.A. (DR 3 series No. 16 dated 23 January, 2014, Certificate No. 16/ARSEG/ MF/14 dated 17 July, 2014) 17 - BIC SEGUROS, S.A. (DR 3 series No. dated 7 August, 2014, Certificate No. 17/ARSEG/MF/14) 14 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

15 Brief History of insurance in Angola Pension Fund Management Companies 1. GESTÃO DE FUNDOS, S.A. (DR 3 series No. 1 dated 8 January, 1999, Certificate No. 01/ISS/MF/99 dated 12 January, 2000) 2. AAA PENSÕES, S.A. (DR 3 series No. 42 dated 10 October, 2000, Certificate No. 02/ISS/MF/01 dated 1 February, 2011) 3. FÉNIX PENSÕES, S.A. (DR 3 series No. 8 dated 27 January, 2004, DR 3 Series No. 17 dated 27 February, 2004, and Certificate No. 03/ISS/MF/04 dated 3 September, 2004) 4. BESAACTIF, S.A. (DR 3 series No. 182 dated 29 September, 2008, Certificate No. 04/ISS/MF/09 dated 16 July, 2009) 5. ENSA SEGUROS, S.A. (Decree No. 81/02 -. DR first series No. 98 / Addendum dated 6 December, Certificate No. 01/ISS/ MF/02 dated 6 December, 2002) ARSEG PwC 15

16 4 Interviews with market operators 16 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

17 Interviewed companies Insurance Companies ENSA Seguros de Angola, S.A. AAA Seguros, S.A. Nossa Seguros, S.A. GA Angola Seguros, S.A. A Mundial Seguros, S.A. Global Seguros, S.A. Garantia Seguros, S.A. Confiança Seguros, S.A. Tranquilidade Corporação Angolana de Seguros, S.A. Protteja Seguros, S.A. Bonws Seguros, S.A. BIC Seguros, S.A. Pension Fund Management Companies Fénix - Sociedade Gestora de Fundos de Pensões, S.A. BESAACTIF, S.A. ARSEG PwC 17

18 Interviews with market operators ENSA Seguros Insurance companies ENSA Seguros Manuel Gonçalves President of the Board of Directors 18 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

19 Interviews with market operators ENSA Seguros 1. Currently, what are the main challenges faced by the insurance and pension fund sector? Assuming the existence of leaders with the vision and strategy necessary to make changes, as is currently the case with ARSEG and the Ministry of Finance, and the consequent greater regulation and supervision capacity, the key challenges of the market include the following: (i) (ii) Improvement in the macroeconomic KPIs of the sector, such as the penetration index of insurance and the density index, increasing the weight of premiums as a proportion of GDP; The need for human resources with knowledge, skills and attitudes compatible with the industry s requirements; (iii) Improvement in the image of the sector s players, to guarantee market solvency, protection of insured consumers, fair competition and ongoing compliance with the rules and standards of the regulatory body; (iv) Growth of the insurance culture among businesses and citizens; (v) Diversification of insurance products, to meet the changes occurring in the country and the growing needs of consumers; (vi) Creation of incentives for saving and growth of pension funds for the social protection of workers; (vii) Optimization of supervision and inspection of mandatory products such as Workers Compensation, Motor and Fire in condominiums, to make the requirement effective and compliant with the existing regulatory framework; (viii) The creation of new compulsory insurance required by the need to protect the most vulnerable victims and to protect important assets at significant risk; (ix) Standardization of management of special co-insurance in the petrochemical industry. 2. What is the company s approach to these challenges? What measures have been planned? We have a strategic action plan until 2017, whose suitability in light of current changes in the domestic market, primarily resulting from the impact of oil prices on the international market, is currently the subject of new strategic discussions, which is a highly participatory process. We intend to cooperate with the competent institutions to influence change in the insurance and pension funds market, towards the implementation of sound public policies in the above-mentioned areas, particularly with regard to strengthening insurance culture, the creation of compulsory insurance and their actual implementation or the development of specific products, thereby helping to create a better insurance and pension funds market/ national GDP ratio. Internally, the development of technical skills and staff leadership remain major concerns for us as we search for increases in sales, diversification of distribution channels and products, improvements in the collection process, the projection of brand and corporate image, optimizing risk management and the continuation of cost reduction planning and control. We have experienced major technological change enabling us to develop these tasks and create rapid access to reliable management indicators that support decision-making processes to make management more efficient, facilitating compliance, accountability and stakeholder relationships. ARSEG PwC 19

20 Interviews with market operators ENSA Seguros 3. One of the concerns in the insurance and pension funds sector, at the civil society level, is financial illiteracy. In your opinion, what measures should be taken and what is available to market players for development? Regardless of the actions to be taken by each player individually, concerted action needs to be taken by operators together and in partnership with the sector s regulatory authority or other entities with specific skills. Participation in the training of police officers, for example, can help improve their oversight role. The dissemination of essential concepts, assertively and directly, depending on the target groups to be reached, is essential. In addition, oversight of existing compulsory insurance and the emergence of others will address the existing knowledge deficits. 4. As an operator in a business area that tends to be highly regulated, what regulatory developments do you feel need to be introduced in the short term to contribute to a better development of the sector in which you operate? ARSEG is aware of the need for regulation and development of legislation, much of which was produced in a very different context from the current economic outlook. ENSA understands that it is important to innovate at the regulatory level in areas such as: (i) Introducing other areas of mandatory insurance to the market the 2nd Technical Insurance and Pension Funds Council has produced a long list of these areas; (ii) The requirement to take out marine/cargo insurance, may turn out to be an important pillar of growth of the insurance industry and the country s economy, by opening it up to foreign trade, particularly imports; (iii) The need for economic diversification calls for insurance such as agriculture and the agreement of in-house insurance contracts such as engineering or multi-risk together with analysis of market conditions to assess the feasibility of regulating deposit insurance, which is often sought by contractors as an alternative to bank guarantees; (iv) Promotion of insurance in sport or insurance to protect students; (v) The revitalization of fire insurance linked to condominiums, which is more relevant today due to the significant national investment in new housing developments and applicability to property under the condominium system; (vi) Amendment of Decree No. 39/01 of 22 June, which approves petroleum operations risk management activities; (vii) The special co-insurance scheme associated with the oil industry needs redesigning to ensure transparent management and a properly thought out solution that balances the interests at stake. A poorly controlled liberalizing solution, based on contractual freedom, can result in apparent freedom with adverse effects. An accessory follows the principal goes the saying. It would be difficult for an accessory liberal regime of petrochemical insurance to coexist with the principal monopoly oil regime. Accordingly, in risk management matters of such great importance, prudence would suggest gradual evolution starting by ensuring rigorous and transparent management to enable control by co-insurers and the regulatory authority, which is now undoubtedly better equipped to oversee the operation of coinsurance; (viii) Regulations of insurance for activities involving environmental risks (Article 27 of the Basic Environmental Law No. 5/98; Article 159 of the Law of Biological Resources, No. 6-A /04, of 8 October; Article 21 of Presidential Decree regulating Environmental Responsibility, No. 194/11 of 7 July); (ix) Resumption of work on the creation of a national reinsurer, as an important instrument for the economy, thereby reducing the outflow of foreign exchange from the country; (x) The tax system needs to be reviewed and adjusted to the reality of the industry and needs to provide incentives for customers purchasing insurance products; 20 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

21 Interviews with market operators ENSA Seguros We will focus on commercial reorganization, with a strong focus on customer service, more and better products, tailored to market needs, with appropriate distribution channels and efficient settlement of claims, with constant emphasis on the ENSA brand. But we will not stop investing in what is essential for the development of our human resources in order to develop their skills and abilities, particularly leadership and ethical conduct, as a mean to meet the objectives of the organization. (xi) Regarding the life and pension funds lines of service, there is the necessity to create fiscal incentives, such as: a) Contributions paid by companies should be deductible as an operating expense for tax purposes; b) Contributions made by employees or individuals must also be deductible for income tax purposes; c) There should be no taxation of the profitability of the investment portfolio during the accumulation phase; (xii) Review of Annex I Life Insurance Tariff of Executive Decree No. 58/02, of 5 December, above all: a) Article 8 (1) and Articles 11 and 18 on profit sharing in life insurance; b) CHAPTER VI Mortality Tables these are old, so a study of the real picture in the country is advisable so that more suitable tables can be devised; (xiii) Promotion of compliance with solvency rules in accordance with international standards (Solvency II and III); (xiv) Change in the current double monitoring to which the current invisible reinsurance operations are subject for payments to be made abroad; (xv) Creation of a registrations database for car insurance, available to insurers and public institutions; (xvi) Regularization of the workplace accident pensions update system, assuming that FUNDAP - Pensions Update Fund - is actually created; (xvii)promotion of an Ombudsmanship to protect the interests of the consumers of operating institutions. 5. What are the company objectives for next year, 2015? We will seek to retain our market share, increase the premiums portfolio and our financial results and maintain a leading position in the market; these are our chief objectives. We will focus on commercial reorganization, with a strong focus on customer service, more and better products, tailored to market needs, with appropriate distribution channels and efficient settlement of claims, with constant emphasis on the ENSA brand. The counterpoint to the idea of increasing revenues is a word that has increasing resonance nowadays: austerity. But we will not stop investing in that witch is essential for the development of our human resources in order to develop their skills and abilities, particularly leadership and ethical conduct, as a mean to meet the objectives of the organization. ARSEG PwC 21

22 Interviews with market operators AAA Seguros AAA Seguros Carlos São Vicente President Angola has more Insurance Companies today. It is necessary to expand the insurance business through compulsory insurance and stimulate demand for insurance. 1. Currently, what are the main challenges faced by the insurance and pension fund sector? The main challenge for the insurance activity is to continue to manage risks to which people, families and businesses are exposed and offer competitive solutions for the transfer of insurable risks. The main challenge for pension fund management insurance business is to continue to expand private pension systems in order to manage and finance the risks of old age and longevity. In the immediate future, the insurance business faces a cyclical growth challenge. The production of insurance premiums requires the expansion of compulsory civil liability insurance applied to the independent professions and certain areas of economic activity, import/export of goods, risks whose provenance, frequency and severity may affect the assets of companies and households. Pension fund management today will focus on the financial education of households and firms and the evaluation of the best pension plans, given the advantages and disadvantages of defined contribution plans and defined benefit plans and so-called mixed plans. The solutions for funding the actuarial costs of the various plans will have to be more inventive. Compliance with the foundation and regular contribution obligations is a critical element for the expansion or stagnation of this activity. With regard to AAA Seguros, since 2014 our business is focused exclusively on the oil sector. Our challenges are the same as those of other insurers with regard to staff skills and the difficulties to operate in Luanda. Other challenges relate to major changes in the oil industry in Angola, in particular the change from shallow to deep and ultra-deep water extraction and the start of exploration activities in pre-salt. This change has increased the value of insured assets, which were already valued at over 65 billion US dollars. It increased the cost of a deep and ultra-deep exploration well, which today are valued at about 100 million US dollars, and also increased the number and the value of FPSO, which are today valued from 3 to 20 billion US dollars. All these changes mean that AAA Seguros must increase its capacity for risk assessment and analysis, transfer of insurable risks, permanent reinsurance, loss adjustment and negotiation. 22 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

23 Interviews with market operators AAA Seguros 2. What is the company s approach to these challenges? What measures have been planned? AAA Seguros is one of a group of companies specializing in risk management, brokerage, insurance and reinsurance, which has been internationalised since its incorporation. AAA operates directly, without intermediaries, in the international reinsurance market in London and Bermuda. We have the Angola Line Slip Facility with the capacity to reinsure all risks in Angola. We are ready to face the present challenges and the future one. The whole of the Angolan oil industry has a very high quality financial protection. Time zones, different regulations, different laws and practices, exchange rate problems, the stress of communications are part of our day-to-day business. Angola has more insurance companies today. It is necessary to expand the insurance business through compulsory insurance and stimulate demand for insurance. The development of professional skills today requires the creation of university courses in risk management, insurance, reinsurance, pension fund management and actuarial sciences. At the same time, increasing the minimum capital for companies and separating the life and non-life lines of business are urgently needed. Insurance is a capital-intensive business and Angola needs giant insurance rather than dwarf ones. The development of professional skills today requires the creation of university courses in risk management, insurance, reinsurance, pension fund management and actuarial sciences. The business will not prosper with poorly trained staff or staff trained on short and rapid courses. We need better knowledge built on stronger foundations. It s not only insurance companies that needs this. Companies also need knowledgeable people who are able to manage, retain, transfer and finance risk. 3. One of the concerns in the insurance and pension funds sector, at the civil society level,is financial illiteracy. In your opinion, what measures should be taken and what is available to market players for development? The existing financial knowledge gap must be tackled structurally, through education. Financial education should start at school and at home. People must be prepared to manage risks to which they are exposed in order to protect their property and prepare for their old age and longevity without depending on their children. Finance is not just money or banks; it also means insurance and risk management. Whoever has something needs to protect it. Marketing and advertising help, but they do not provide knowledge or financial education these take years to acquire. Education is the most reliable way. 4. As an operator in a business area that tends to be highly regulated, what regulatory developments do you feel need to be introduced in the short term to contribute to a better development of the sector in which you operate? All legislation of insurance and pension fund management activity needs to be updated and modernized. Updating should also include further liberalization of the sector to allow the market to set the premiums for noncompulsory insurance. Some legal fees are archaic and penalizing. Modernization should improve and simplify the regulation and supervision of insurance and pension fund management activity. 5. What are the company objectives for next year, 2015? In 2015, AAA Insurance will continue its work in a context of many new features: low oil prices, new fields under development, intense drilling activity in new fields and a greater number of fields in production. Our priority is to increase the efficiency of our operations and communication with all stakeholders from the insurer to the reinsurer. The ongoing battle will continue to be the requirement to pay insurance and reinsurance premiums within contractual deadlines. The transfer mechanisms are neither simple nor short and reinsurance does not permit delays and defaults. It is a constant struggle. All the stock and flow of Angola s wealth are in oil. This means that our activity is vital, even though discreet and silent. ARSEG PwC 23

24 Interviews with market operators NOSSA Seguros NOSSA Seguros Carlos Duarte Chairman of the Board of Directors 1. Currently, what are the main challenges faced by the insurance and pension fund sector? There are several challenges facing these sectors, among which we can highlight the following: (i) The insurance industry in Angola has been having a significant increase in companies; however, it seems to us that the insurable mass has not increased accordingly. Part of this contraction comes from the economic downturn affecting the Angolan economy. Many licences have already been awarded in the sector, which may have unwanted effects on the system soundness. This is a situation in which the regulator needs to play an active role, particularly in monitoring; (ii) We see the entry of new competitors as a positive sign in terms of the sector attractiveness. However, we believe that the market will be sustainable if we can expand the insurable base of the economy, in particular by reformulating the co-insurance system for the petrochemical industry, aviation and mining and also by introducing new compulsory insurance - import and export transport insurance; (iii) The need for high quality, timely information on sectors is something that has to be achieved. The shortage of sociodemographic information about the national and international markets as a support for strategic decisions such as the launch of new products, customer targeting, distribution channels, among others, is very significant; (iv) Overcoming the fragile insurance and savings culture that exists in Angola. Lack of knowledge about the role and importance of insurance is still significant, as is lack of concern for saving. This also ends up reflecting/ resulting in a shortage of technical skills needed for the proper development of these activities. It is very difficult to find qualified people, either to provide back office services or sales and distribution channels; (v) There is an urgent need for a stronger supervision of some practices that can be found when selling some insurance in particular, relating Worker s Compensation, Motor Insurance and Health Insurance. Premiums are deteriorating and this calls the very sustainability of the lines of business, and therefore companies. In general terms, an environment of discipline and rigour must be cultivated for the activity to develop harmoniously; (vi) The shortage of financial instruments that are suitable for the needs of our activities insurance and pension funds needs to be addressed, not only to ensure matching with our responsibilities, but also to comply with the diversification rules that have been imposed. Insurers and pension funds are, by nature, institutional investors and they have a role to play in the economy; (vii) Conditions for investment in the country need to be created. It is difficult to find value for money suppliers/service providers in the market, especially in the health and motor lines of business. As this industry is dependent on third parties to meet customers needs, this situation is very significant. 24 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

25 Interviews with market operators NOSSA Seguros Companies should also invest in training their human resources, with a particular focus on the development of their technical knowledge. In this context, NOSSA is part of a group with this specific vision of learning and training - the BAI Academy - which promotes financial literacy, with programmes within the group and available to the general public. 2. What is the company s approach to these challenges? What measures have been planned? Following the challenges identified above, NOSSA has made a contribution through several initiatives such as: (i) Preparation of a training, coaching and career development plan to qualify our employees for their roles; (ii) Close monitoring of the opening of the capital market and other related initiatives, where we have contributed with the special issue for Insurance Companies and Pension Funds, through the submission of a proposal to the Ministry of Finance. We interact frequently with our sector s regulator. We want to be an organization recognized for contributing actively to the development of our economy; (iii) In order to meet the challenge of a possible slowdown in the sector s growth, we plan to open new branches, launch new products, establish a portfolio maintenance programme and implement a cost control management program; (iv) Both through our above- -mentioned expansion strategy (customer proximity) and participating in institutional advertising events and campaigns, we have been trying to reduce the existing gap between current customer perceptions and what the perception of the sector should be. Obviously, this is a process that will need to be more institutional and in which ARSEG can develop a very important role; (v) We have strengthened our technical departments, systems and internal processes. We have set up a management control department to gather relevant statistical and management information for decision making. We are contributing to the development and modernization of the sector. ARSEG PwC 25

26 Interviews with market operators NOSSA Seguros 3. One of the concerns in the insurance and pension funds sector, at the level of civil society, is financial illiteracy. In your opinion, what measures should be taken and what is available to market players for development? As mentioned earlier, the insurance culture in Angola is not yet developed. Knowledge within the population is limited and the population does not yet appreciate the need to protect property and people. In our view, the competent bodies, such as the Ministry of Finance, ARSEG and ASAN, need to pool their resources to develop new initiatives, communicate and inform the public of the need for insurance and its scope. Naturally, the operators themselves can and should contribute. The promotion can take place through school programmes on banking and insurance, outreach programmes in the media (radio, TV, newspapers) and the publication of magazines about insurance and pension funds. Micro- -insurance could also be promoted. Companies should also invest in training their human resources, with particular focus on the development of their technical knowledge. In this context, NOSSA is part of a group with this specific vision of learning and training - the BAI Academy - which promotes financial literacy, with programmes within the group and available to the general public. We have an ongoing set of programmes targeting the different technical levels required for operation in the sector. Finally, for corporate customers we can organize promotion initiatives such as conferences/clarification sessions. 4. As an operator in a business area that tends to be quite highly regulated, what regulatory developments do you feel need to be introduced in the short term, to contribute to a better development of the sector in which you operate? The developments at regulatory level that could improve the industry are: (i) Improving the regulator action in oversight the technical results of the insurance companies, forcing companies to comply with the established rules, confirming their technical profitability, control of financial guarantees and, therefore, the in solvency margin; (ii) The creation of regulations on competition (including competition from international companies), BIM (Bank Insurance Model) activity and other emerging distribution channels mobile and Internet which should bring greater transparency to the sector, to co-insurance, to risk management and to internal control. There also needs to be greater transparency and disclosure by entities; (iii) Change to the regulatory standard governing premiums/ rates in Motor and Worker s Compensation insurance. We advocate tariff liberalization, with maximum set levels (for consumer protection) instead of the current flat rates. This change should be monitored by the regulator, through supervision of the results of insurance companies. (iv) Dissemination of information on companies operating in the market that comply with ARSEG s regulatory requirements, both in terms of accountability and in terms of information requested. These would enhance the credibility of the sector and the customers protection. Penalties need to be imposed when failure to comply. (v) Communications between ARSEG and insurance and pension funds management companies need to be quicker and, in certain situations, less bureaucratic. 5. What are the company objectives for next year, 2015? NOSSA s key objectives for 2015 relate to the growth of the company s profitability, geographical distribution (ongoing), diversification of supply and continuing to seek better quality in customer service. We shall continuously adapt our main Non-life products to suit the needs of the population and we want to improve communication with customers by providing the necessary information for understanding each product. We are aware of the paradigm shift that is taking place in the sector with the entry of new market players, so we intend to lead this transformation. We will contribute to increase professionalism and enhance intermediary activity. We want to consolidate the position we have been developing as a solid company and trusted by consumers; a company that prioritizes development of its staff and teams with superior technical knowledge and, of course, we wish to highlight our DNA a transformational brand in the Angolan insurance market. 26 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

27 Interviews with market operators GA Angola Seguros GA Angola Seguros Emmanuel Cullin Chief Executive 1. Currently, what are the main challenges faced by the insurance and pension fund sector? We face many challenges, among which we can highlight: (i) the need to monitor the growth that the sector is experiencing. In 2013, the sector reached a significant milestone with the introduction of compulsory motor insurance, which gave new emphasis to the notion of mass insurance. This situation requires insurance companies to be ready to respond to a new volume of applications and to provide a better service; and (ii) the growing number of insurers in the market. Despite competition being healthy for the market, countless licences have been granted. It is important to have good supervision to evaluate to the robustness of these licences and avoid situations that undermine the credibility of the sector. 2. What is the company s approach to these challenges? What measures have been planned? Our comments are separated into two different aspects, the mass market and the enterprise market. Regarding the mass market in order to address the significant increases in demand, we will increase the number of points of sale and improve our customer service. GA Seguros has, to date, five branches (four in the provinces) and 11 kiosks and plans to open two more branches in the provinces. Since July 2013, to respond to the start of compulsory motor insurance, we opened 5 new points of sale and recruited about 40 employees to work in them. Of course, we had to invest in training for these new employees, information systems to support the operation and process improvement. We also intend to improve our level of service provision, particularly in terms of claims management. With the significant growth of the business, the volume of claims has also increased and we have to be prepared for this. The Group to which the company belongs has considerable experience in the insurance sector, particularly in Africa, so we believe that we have a good competitive advantage over other players. Regarding the enterprise market, we wish to continue with what we have been doing, trying to improve our image in the market, which has always been associated with good service provision. 3. One of the concerns in the insurance and pension funds, sector at the civil society level, is financial illiteracy. In your opinion, what measures should be taken and what is available to market players for development? As noted, lack of financial literacy is a major challenge for many operators insurance companies, ARSEG and other bodies. There is no clear understanding of the role and relevance of insurance. Most of the time essentially we are referring to the mass market people are buying insurance to comply with a requirement, to avoid being penalized for not doing so. The best way of tackling this mentality is by doing a good job and that is what we are doing. There needs to be constant communication with the market to combat this. We have been active in this area, particularly by organizing campaigns. We would highlight the importance of ARSEG in acting in this area. It must put out a strong message and act together with the various organizations so that we are all working to the same purpose. For example, interaction with the police. ARSEG PwC 27

28 Interviews with market operators GA Angola Seguros 4. As an operator in a business area that tends to be highly regulated, what regulatory developments do you feel need to be introduced in the short term, to contribute to a better development of the sector in which you operate? In general terms, legislation/ regulation related to the insurance sector needs to be reviewed and adapted to the country s situation. Of course, in connection with this review, supervision also needs to be stronger to ensure that the various operators comply. For example, there have been instances of price reductions in some insurance products dumping and these needs to be addressed. In this case, clearly the tariff setting processes need to be reviewed, to bring such practices to an end. Regarding the mass market, we wish to highlight two initiatives related to combating fraud in the sector and claims management. We think that the regulator could be more diligent in these areas. For example, in order to combat fraud, urgent action is needed to address falsification of certificates, in management of motor claims and to encourage cooperation between insurance companies. In this case, for example, a clearing house could be created, with the participation of insurance companies, to streamline claim settlement. Regarding the enterprise market, the initiatives to be developed are those associated with collection of premiums, disclosure of the Automobile Guarantee Fund (FGA) and the provision of information about the sector to the market. Regarding the collection of premiums, a publicly available black list could be created for bad debtors. ARSEG could control this list and make it available to all. This would help insurance companies avoid underwriting policies for bad customers. We also intend to improve our level of service, particularly in terms of claims management. With the significant growth of the business, the volume of claims has also increased and we have to be prepared for this. ARSEG must put out a strong message and act together with the various organizations so that we are all operating in the same way. Finally, we think that the creation of a national reinsurance company could be a good initiative, as it may contribute to the development of the Angolan economy. However, the availability of a good rating needs to be guaranteed and conflicts of interest in its management need to be avoided. 5. What are the company s objectives for next year 2015? Our goals for 2015 are in line with what we have been doing in the past, with continued organic growth and business expansion with good returns. Regarding the mass market, we believe it will continue to grow. We want to support this growth and position ourselves as market leaders, which will mean that we have to establish more points of sale, bigger and better teams and provide better customer service in particular with regarding claims management. We will maintain our focus in Luanda, but we intend to expand into other provinces. Currently, we have four branches in the provinces and we want to open another two. With regard to the enterprise market, we highlight the introduction of the health insurance product and the offer pension funds schemes. To conclude, we are optimistic about the development potential of the Angolan market. Given our experience as a Group in Africa, and Angola being one of the countries that has attracted greatest interest for us, due to its upward growth trend and current levels of development, we intend to continue to invest and contribute to its growth. We want to invest more in Angolan human resources and we will continue to focus on boosting business and try to follow the evolving market trends. 28 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

29 Interviews with market operators A Mundial Seguros A Mundial Seguros Elvino Mariano Chairman of the Board of Directors Mundial Seguros has launched a range of initiatives. We invest in training the human resources of our company. We have invested in improving our IT systems and implementing / improving our business processes. 1. Currently, what are the main challenges faced by the insurance and pension fund sector? We can try to summarize some of the challenges in two ways one more macroeconomic and the other at the level of the market/business itself. At macroeconomic level, we understand that it is a challenge for insurance and pension fund management companies to follow/ adapt to (i) the growth that the Angolan economy is experiencing; (ii) the economic diversification policies implemented by the Angolan Government; (iii) increased employment and, consequently, growth in the population s income; (iv) the increase in the liquidity economy; (v) increased lending to companies and individuals, and (vi) the provision/development of the capital market. However, we know that the GDP penetration index of this sector remains low. In a terms of market/business, the challenges for insurance and pension fund management companies relate more to: (i) the level of solvency and its maintenance at comfortable levels (especially when we experience significant activity growth); (ii) obtaining adequate returns on capital; (iii) the fight against the slowdown in some sectors of the economy (e.g. construction), which has direct impact on operators; (iv) maintaining adequate tariffs as competition increases; (v) ensuring positive margins in the Worker s Compensation Insurance and Health lines of business; (vi) combating constant employee turnover; (vii) improving the technology readiness of the business (which, in some cases, remains very primitive). 2. What is the company s approach to these challenges? What measures have been planned? To address some of these challenges Mundial Seguros has launched several of initiatives. We invest in training the company s human resources and are being proactive in encouraging employees in their growth. We have invested in improving our IT systems and in implementing/improving our business processes. Mundial Seguros is also prioritizing diversification of its products by relaunching/restructuring its Life Line Business, in which we highlight the creation of a life credit product (linked to consumption and credit cards), and funeral insurance. We estimate that in early 2015 we will have released them in the market. Note that, before launching new products, we always aim to maintain our existing offers at high levels of quality and competitive prices (e.g. regular monitoring of the Worker s Compensation Insurance and Health Line of Services). Associated with these developments, we wish to penetrate further into the market, by seeking to streamline the Bancassurance distribution model and through a closer relationship with our representatives. We want to monitor/encourage the development of the country s capital market through investment. We plan to diversify our investment portfolio. Government bonds may be a first step. ARSEG PwC 29

30 Interviews with market operators A Mundial Seguros Another measure that we want to ensure is to adjust our corporate governance Model, in particular through the creation of the internal audit and management control functions. 3. One of the concerns in the insurance and pension funds sector, at the civil society level is financial illiteracy. In your opinion, what measures should be taken and what is available to market players for development? There is a clear lack of public awareness regarding insurance. In spite of the fact that the insurance industry has been operating in Angola for a long time, the regulators and the Angolan Government have not devoted due attention to it. Another approach is needed. Most of the population takes out insurance because it is compulsory (which is not always assured/ inspected) and not as a means of protection. The Government, ARSEG, ASAN and insurance companies need to work together to raise the awareness of the population, through lectures at universities, training, awareness campaigns in the streets and information about insurance as a means of protection and that in of accident the risks that are covered will be reimbursed through a contract between the insurance companies and the insured party. As part of this process, a consumer support agency could be created with a significant role in communicating the importance of insurance. Mundial Seguros, for example, provides support to the population through awareness raising campaigns and is a sponsor of road accidents campaigns and makes efforts to inform the public about the benefits of insurance to society. 4. As an operator in a business area that tends to be highly regulated, what regulatory developments do you feel need to be introduced in the short term, to contribute to a better development of the sector in which you operate? With the country s economic and financial growth, the range of compulsory insurance now needs to be extended. For example, with the increase in bank credit, it may make sense to promote the creation of multi- -risk home insurance. The market is growing; the emergence of new insurance companies is a reality. The market is beginning to take steps towards greater maturity and is becoming increasingly demanding. Accordingly, the regulatory model must follow this growth and maturity. For example, some flexibility could be given to insurance companies, with the knowledge of the regulator, to create internal models for calculation of capital requirements (solvency and risk management). Another case that requires monitoring, associated with this growth, relates to the level of charged premiums. It would also be useful to address/ improve quality requirements, in particular, governance, supervision and risk management models. Improving information reporting and its timeliness, where there is public domain information, are areas that need to be regulated/reviewed. We also wish to highlight thebrokage sector as an area for improvement, particularly in terms of supervision. In addition, the regulator should contribute to the increased transparency of the existing system linked to oil activity. A possible change could be proposed for example, the allocation of the insurable mass could be divided based on market share/size of each insurer. Another important issue for the sector involves the creation of a reinsurance company in Angola. This could be an important mechanism for keeping capital in the country and financing the economy. Its management should be independent and a target for the involvement of the Angolan Government and the regulator. With more effective legislation, both in quantitative and qualitative terms, we expect a more financially robust sector, enabling companies and supervisors to detect warning signs in advance and to fix or prevent any problems. 5. What are the company objectives for next year 2015? 2015 will be a year of stabilization and consolidation for the Company, due to certain changes that has experienced in the past. We will seek to provide the company with the financial strength needed to carry out its activity, which will involve a capital increase. In terms of offered products, we will seek to consolidate what we already have in the market. Redefinition of worker s compensation and health insurance, given the somewhat unsatisfactory technical results due to the risks covered, the existence of fraud and due to the fact that the relationship with partners, including clinics, is not yet clear. We intend to relaunch the Life Line of Service, as mentioned above, and to add new covers to existing insurance, such as Assistance and Travel. With regard to human resources, we aim to provide our employees with the skills that will enable them to meet the market needs. We intend to focus on training and recruitment of skilled foreigners for specific roles. Finally, we expect this to be the year in which we lay the foundations for the construction of a new headquarters, as well as a clinic. 30 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

31 Interviews with market operators Global Seguros Global Seguros 1. Currently, what are the main challenges faced by the insurance and pension fund sector? The insurance market in recent years has been growing at levels well above the Angolan economy. 2014, with the strengthening of the supervision of compulsory motor insurance, saw growth at even higher levels. This brings challenges for us at various levels, but especially related to the need to find and train, in good time, employees to monitor and support the company in this growth. Regarding to pension funds, for Global Seguros this is a market in which we believe and which we prioritize, but whose development will depend largely on factors outside the company. We emphasize the need to create a favourable tax environment for participants and for investment of funds and the emergence of investment products that are aligned with investment policies. 2. What is the company s approach to these challenges? What measures have been planned? Rui Campos Chairman of the Board of Directors The prospect of new compulsory insurance will also force companies to develop new technical skills and adapt their internal organization to be able to maintain the quality response to which customers are used. The entry of new competitors is not seen as a challenge, individually, by Global Seguros, as we believe this will contribute to the market development and growth. This situation is a challenge for the market as a whole and for the regulator, which must ensure more active regulation to protect the rights of policyholders and compliance and development of the regulation of the sector and healthy competition. Another challenge, facing the whole market, is to develop and implement mechanisms for interaction between the different players, including the regulator itself, to allow faster and more efficient exchange of information, settlement of claims and access to the the motor insurance governance guarantee fund, among others. Briefly, from our point of view, the answer to the above challenges includes people, procedures and technology. Global Seguros is developing an integrated training programme, called Global Training Programme, which aims to our teams with the necessary skills for the development and growth expected in the coming years. It is a programme to all company, from basic training in insurance, required for all of our employees, to technical issued (specific to some areas), and even more advanced subjects related to specific business development projects. Investment in processes and technology, at a time of market development, in which the individuals segment is starting to become more prominent, makes perfect sense. Even for a company that has been operating for 8 years, there is always room for optimization, to develop and improve processes and technology that accelerate and facilitate our customer relationships and responses. ARSEG PwC 31

32 Interviews with market operators Global Seguros Global Seguros is developing an integrated training programme, called Global Training Programme, which aims to provide our teams with the necessary skills for the development and growth expected in the coming years. From the market point of view as a whole, we feel that we are starting to take some important steps, such as the revision of some legislation in the sector and the consolidation of the role of our association ASAN as a forum representing its members and more important, acting as a driving force for the development of best practices in the sector and market development. We also emphasize the need to establish forms of cooperation with our counterparts that could enable the country to retain more capital, whether in the form of premiums or reserves. 3. One of the concerns in the insurance and pension funds sector, at the civil society level, is financial illiteracy. In your opinion, what measures should be taken and what is available to market players for development? Given that the market players are insurance companies, brokers, the regulator and the Association, we are talking about the entities that have most interest in and responsibility for education of the market. The problem is not only at the level of civil society, but also in business circles. Insurance is a complex product, highly regulated, subject to extensive and intangible contracts. To some extent, it is understandable that there is some lack of knowledge about these products. But, on the other hand, it is obvious that there is also a general level of financial illiteracy. We know that markets are much better developed when the accumulated knowledge of their players is more extensive. This also includes, of course, the customers. Insurance companies can and should engage in communication campaigns for both individuals and businesses. ASAN, as an example, has recently developed an extensive campaign for the general public on Motor Insurance. It would be interesting to develop a partnership between the educational system and the insurance sector for a greater dissemination of financial and risk management concepts. Global Seguros has been making a great effort to participate in radio and television programmes for the general public whose main objective is educational to clarify how the insurance market operates, the contracts that rule insurance policies and the risks they cover. 4. As an operator in a business area that tends to be highly regulated, what regulatory developments do you feel need to be introduced in the short term, to contribute to a better development of the sector in which you operate? An insurance policy is an intangible product. In exchange for a premium, the insurance companies take responsibility for certain risks that could jeopardize the assets of a company or an individual. Products therefore depend, to a large extent, on the credibility of the insurance company the trust that people and organizations put in the the insurance companies so that, in the event of a casuality, we step in financially. The stronger the regulator, in this case ARSEG, the greater the credibility of the sector. This also ensures equal competitive conditions. Supervision is, therefore, important for the entire sector, not just for the State or consumers. 32 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

33 Interviews with market operators Global Seguros We rely on the regulator to ensure a healthy and competitive market and, at legislative and regulatory level, to promote the development of existing laws and regulations. The following can all be considered as examples: i) Greater operational capacity of the Motor Insurance Guarantee Fund and its extension to physical injury; ii) Regulation concerning the transfer of customers between companies; iii) Clarification and simplification of current legislation concerning the collection of premiums and the policies expiration dates. 5. What are the objectives of the company for next year, 2015? First of all, the goal qe aim daily we do not seek to be the biggest insurance company in Angola, but we want to be the best one the reference insurance company when a customer is looking for efficiency, financial strenght and security. We plan to increase and improve our range of products to provide more suitable products to the market and to our customers. A supply of flexible products, depending on the customer, that can be adapted (by adding or removing cover, for example) to the specific situations. Focusing on differentiation through the quality, speed and expertise with which the company responds both to injured customers and injured third parties. For the four year period ending in 2017, Global Seguros plans to quadruple its volume of premiums and, at the same time, double its market share. Enhance our profitability both interatly or to our stakeholders is one of our main objectives. We hope to comply with them by working closely with our customers. With regard to Pension Funds, our immediate objectives include attracting new corporate customers for Closed Funds large companies seeking to invest in an effective mechanism for retention of their key assets, people and the creation of a Collective Membership Open Pension Fund targeting SMEs. x4 For the four year period ending in 2017, Global Seguros plans to quadruple its volume of premiums and, at the same time, double its market share. ARSEG PwC 33

34 Interviews with market operators Garantia Seguros Garantia Seguros João RaiWorld Belchior Chairman of the Board of Directors 1. Currently, what are the main challenges faced by the insurance and pension fund sector? The Angolan insurance market is worth about one billion US dollars; however, its penetration index in the economy is still limited. The challenges faced by the insurance and pension fund sectors are of different types and include the following: (i) The need to adapt the legislation given the current reality and prepare it for the future, for a growth scenario. This is responsibility of the recent regulator, ARSEG; (ii) Modernization/innovation in the business activity of various operators, among other things through the creation of new products and services tailored to market needs (e.g. microinsurance.); (iii) Dissemination throughout society of the role of insurance and its relevance, in order to help strengthen the insurance culture; (iv) Training/qualification of the various market stakeholders; (v) Development of the existing traditional distribution channels and promotion of the use of new channels (e.g. Internet.); (vi) Technological modernization of business activity to provide a better and more efficient service. Garantia Seguros has launched a range of initiatives. At an IT level, we want to change the current operational support system. In terms of human resources, we are working on a talent retention system. 2. What is the company s approach to these challenges? What measures have been planned? To address some of the above challenges, Garantia Seguros has launched a range of initiatives. We have been developing new products and the distribution channels that we use, to provide a better response to our customers. From an IT perspective, we want to change the current operational support system in order to provide a better service. Regarding human resources, we are working on a talent retention system, so that we can maintain good skills in the company. In a way, linked to resources, we are reviewing / improving and implementing best practices in the company s governance structure in an attempt to create an internal audit compliance and control department in the short term. Finally, Garantia Seguros is concerned about the national dimension in disseminating insurance business and has, therefore, established branches in some provinces (e.g. Cabinda, Benguela, Huíla) and plans to open others in provinces where it does not operate yet. 34 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

35 Interviews with market operators Garantia Seguros Poor financial literacy remains a problem in the insurance sector in Angola. The public needs to be informed about the benefits of insurance. 3. One of the concerns in the insurance and pension funds sector, at the civil society level, is financial illiteracy. In your opinion, what measures should be taken and what is available to market players for development? Weak financial literacy remains a problem for the insurance sector in Angola. However, to solve this problem in the short term, the public needs to be informed about the benefits of the insurance business, for which a very clear message needs to be communicated about the economic and social importance of insurance. Garantia Seguros has also made a contribution, essentially by communication through advertising media (e.g. radio, newspapers) and in constant communication with the public, to pass on the message of the importance of insurance in society. 4. As an operator in a business area that tends to be highly regulated, what regulatory developments do you feel need to be introduced in the short term to contribute to a better development of the sector in which you operate? We understand that, in general terms, legislation linked to these sectors, insurance and pension funds, needs to be reviewed, updated and in some cases corrected to respond to the situation which we are experiencing. Examples are the creation of legislation/regulation on micro-insurance, the updating of Law no. 1/100 on pensions relating to insurance in the Worker s Compensation Line of Business and the conditions for change of policies. The introduction of other mandatory insurance products may also be an important step in the adaptation of the business to the current situation in Angola. However, energy activity i.e. the oil industry urgently needs to change to provide greater equity in its operation. We highlight the importance of having a local reinsurance company in Angola, as this will allow capital to be kept in the country and thereby encourage greater economic dynamism. However, its management has to be independent. In terms of financial reporting, we understand that there is significant room for improvement in this issue. 5. What are the company s objectives for next year, 2015? Regarding its process of evolution, Garantia Seguros was restructured in 2013 with the entry of new strategic shareholders, resulting in a widening of the company s area of action and its plan to achieve higher growth. The company s strategic plan includes several initiatives, among which we can highlight the following: (i) better operation of the various current Non- Life Line of Business; (ii) introduction of the Life Line of Business and Pension Funds; (iii) expansion of the distribution network (e.g. partnerships with travel agencies and agreements with banks); (iv) introduction of health insurance products; and (v) attraction of human resources with technical skills related to the insurance business. Finally, in 2015, we hope that Garantia Seguros will move to new premises, which will be used as its new headquarters. ARSEG PwC 35

36 Interviews with market operators Confiança Seguros Confiança Seguros João Victorino President of the Executive Committee 1. Currently, what are the main challenges faced by the insurance and pension fund sector? The insurance market does not even represent 1% of Angola s GDP. This means that there is significant room to growth in the sector. However, growth brings challenges. We believe that there should be a greater coordination between the regulator and the market players to strengthen the insurance culture in Angolan society. The aims should be to demonstrate the role and the real importance of insurance and to have an informative function and another course of action. We think that, at this time, the population has still not absorbed this culture and only takes out policies where they are compulsory. With time, the insured party acquires an increasing understanding of the benefits of owning insurance products. There is, therefore, an urgent need for insurance companies to be prepared to provide better services for claim management. The legislation/regulations around insurance and pension funds must be reviewed and adapted to the current situation and growth that Angola is experiencing. Also, linked to this development, the supervisory role (not only the regulator, but also other bodies in society), must be reinforced to ensure proper and full compliance. For example, how is it possible that cars are able to leave car dealerships without insurance? Another example relates to the way that the monthly insurance payment is made by the insured party as, based on the local situation, as soon as the insured party has the seal, he stops making the remaining monthly payments. In my opinion, payments should be quarterly, six-monthly and annual for civil liability insurance, for cultural and commitment reasons. Apart from the insurance culture that needs to be strengthened, a savings/ social security culture does not yet exist and also needs to be fostered. Although part of the population is not able to do so, other groups are able to do so, but don t. Clearly, it needs to be developed and, once again, the various players must take responsibility for making it happen. 2. What is the approach of the company to these challenges? What measures have been planned? Confiança Seguros will make its contribution so that some of these challenges can be overcomed. With time, the insured party acquires an increasing understanding of the benefits of owning insurance products. Confiança Seguros will make its contribution so that some of these challenges can be overcomed. We wish to enter the Life Line of Business and the Pension Funds. We have partnerships with other organizations, specialised in these areas, as we do not yet have the required know-how. However, we hope to have these products properly calibrated soon. Although it is difficult to set up this type of insurance in the Angolan society, because most Angolans do not have a deep-rooted savings culture, we intend to make a significant effort to promote it, to contribute decisively to expand the existing savings/insurance culture. This will not be easy. For example, pension funds are very important for safeguarding the future, but when most people do not have sufficient resources to live, it is difficult for them to think in long-term savings. 36 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

37 Interviews with market operators Confiança Seguros Financial illiteracy is indeed something that plagues Angola and needs to be dealt with. To address the lack of available information and strengthen the insurance culture in the society, the company has prioritized the distribution of leaflets, seeking to specify the various types of insurance products offered and their importance. We have presence in social media such as Facebook and Twitter, as an example of company activity dissemination initiatives. We try, wherever possible, to participate in events because we believe that they are initiatives that can address the knowledge gap in Angola about the true importance of insurance. 3. One of the concerns in the insurance and pension funds sector, at the civil society level is financial illiteracy. In your opinion, what measures should be taken and what is available to market players for development? Financial illiteracy is indeed something that plagues Angola territory and needs to be dealt with. As mentioned above, Confiança Seguros has focused on distributing extremely accessible customer leaflets that seek to explain in detail the various types of insurance products it offers and their importance. Recently, we participated in a fair at Lusíada University, where we explained the importance of owning an insurance and its usefulness. Such initiatives will undoubtedly help combat financial illiteracy in Angola. 4. As an operator in a business area that tends to be highly regulated, what regulatory developments do you feel need to be introduced in the short term to contribute to a better development of the sector in which you operate? As mentioned when addressing the issue of challenges, legislation/ regulations on insurance and pension funds needs to be reviewed and adapted to the situation that Angola is experiencing. Associated with this adaptation/update, supervision also needs to be strengthened in order to ensure compliance by market operators. Another initiative that we consider important relates to the creation of new compulsory insurance products. This enables the insurance culture to be strengthened. However, creating compulsory insurance may lead to some constraints for the population as the lower classes may not be able to bear the cost of insurance in Angola. However, a prudent choice of compulsory insurance products is needed so that the population has income to pay for these services and so that it can benefit from them. Here, ARSEG has an important role as it should be aligned with other government agencies so that these initiatives can be properly implemented. For example, in the process of buying a house with a mortgage or other type of loan, citizens are asked to sign a life insurance contract. However, it is important for the regulator to be aware that there may be some abuse by the banks, as it is illegal for a customer requesting a loan to buy a house or any other type of loan to take out insurance with the bank from which it requested the loan. ARSEG PwC 37

38 Interviews with market operators Confiança Seguros Dumping situation must also be avoided. ARSEG needs to put in place mechanisms ensuring that the charged prices by some insurance companies in market are fair, I mean essentially in the area of compulsory insurance. There is a situation of unfair competition. Another issue that needs proper supervision and possibly even revision is compulsory co-insurance in the oil business. Currently, it is far from being transparent. There is another matter that needs to be revised, again through supervision: the introduction of mechanisms to avoid fronting pratices. 5. What are the company s objectives for next year, 2015? We believe that 2015 will be the year of Confiança. Quite positive results were recorded in 2014, in particular with the market connection with a growth of more than 2000%. The developed products surpassed all sales expectations. We moved to the development of solutions for our policyholders and for the market in general. For example, we have developed health solutions for inclusion in a package, because our policyholders do not want their insurance policies scattered across different companies. The developed products surpassed all sales expectations. We moved to the development of solutions for our policyholders and for the market in general. One of the goals of Confiança is to balance the scales. A solid restructuring programme is under way and an expansion plan has been outlined. This growth will be both organic and internal, through the creation of areas of specialization and by increasing the number of branches. Currently, we have two agencies, one in Talatona and another here in Amilcar Cabral, and we plan to open 2 more, one in central Luanda and another in the Benfica area. To continue the expansion of the company, an agreement was signed with the Angolan postal service that will mean that Confiança can reach all the provinces quickly. We still have the possibility of entering into an agreement with a bank. To support this development, we plant to recruit about 20 employees (to date, we have about 30). 38 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

39 Interviews with market operators Tranquilidade Tranquilidade Artur Duarte Director 1. Currently, what are the main challenges faced by the insurance and pension fund sector? In our view, there are several challenges that must be faced for the sector to evolve: (i) Enhancing technical skills of our human resources. The number of qualified people in the Angolan market is limited compared to the its development potential. There needs to be greater investment in training at both technical and commercial levels; (ii) Awareness-raising in society on the role of insurance products creating a stronger insurance culture. Advertising in newspapers or on television is not enough. We need to reach out to people and, in this process the companies distribution channels are very important. In this business, we need to reach out to both people and businesses; (iii) Creation of conditions for the development of investmentrelated insurance activity. Insurance companies are institutional investors, they inject life into the economy and need good investment solutions, as print of the business. (iv) Development of a value chain in this business. Structurally there are a number of restrictions that hamper the provision of a quality service. Based on our experience, we do not advocate highly vertical models (holding the various providers) we believe more in market solutions. 2. What is the company s approach to these challenges? What measures have been planned? In terms of skills, we emphasize the recruitment process and seek to provide continuous training for our workforce. We try to ensure that the Company has a balanced human resources mix between more experienced and less experienced employees. We think this provides us with better developed staff. In terms of market awareness of the importance of the sector, we are constantly seeking to communicate. We have our network of distribution partners, which we believe are the best way to reach people and businesses, and this is something we intend to expand. We also want to reach the provinces. 3. One of the concerns in the insurance and pension funds sector, at the civil society level is financial illiteracy. In your opinion, what measures should be taken and what is available to market players for development? The issue of financial illiteracy in society is a commonplace; everybody mentions it, together with the lack of an insurance culture. In fact, there is a greater need in the population for knowledge in this area. We believe that the insurance culture in Angola can be enhanced in three ways: compulsory insurance, through the companies sales force /distribution networks and by sales through business operators, particularly by enterprises. ARSEG PwC 39

40 Interviews with market operators Tranquilidade We are not in favour to create a numerous compulsory insurance areas because the more there are, the less effective their control will be. First it is necessary to ensure that the compulsory insurance in force is actually purchased by the population and, above all, that it works. Then there are other types of insurance that might be made compulsory in Angola could gradually be introduced, such as liability insurance for certain business activities. In this case, compulsory liability insurance could promote business activity because, if there is a protection system for the policyholder, they will be safeguarded and will appreciate their insurer much more. Insurance companies, through their sales forces, can foster an insurance culture in the population, as they communicate and encourage the purchase of their products. Most insurance contracts are provided by employers, such as health insurance, worker s compensation insurance, motor insurance, etc. It seems there is some room here for the role of awareness-raising to be taken on by companies. This communication by companies will help people to understand the benefits of having insurance and encourage them to protect themselves with other products. 4. As an operator in a business area that tends to be highly regulated, what regulatory developments do you feel need to be introduced in the short term to contribute to a better development of the sector in which you operate? There are several legislative / regulatory developments that could certainly contribute to better development of the sector. As already stated, compulsory insurance must actually be made to function properly, with tighter supervision of certain entities. In addition to existing compulsory insurance, other types of compulsory insurance could be created, starting with those applicable to the business sector. We believe that corporate governance is also something that needs more regulation. ARSEG must act to produce more regulation for specific areas such as risk management, internal control, collections and, especially, provisioning levels. Regarding taxes, work is needed to adapt existing legislation to the actual situation of the sectors. Tax benefits are crucial, especially in social security insurance for the protection of workers and their families, such as life and health insurances. Mechanisms could be created for the deduction of the amounts incurred in these products for tax base calculations. In this matter the regulator has an important role to play in influencing/supporting the appropriate legislators. Other relevant areas for review/creation that could boost the sector relates to: (i) combating possible widespread and recurrent fronting pratices; (ii) the presentation/dissemination of the Motor Insurance Guarantee Fund; and (iii) creation of a platform for the direct payment of compensation claims to the insured party. Practices that we believe would enhance the sector credibility. Insurers, through their sales force, can foster an insurance culture in the population, as they communicate and encourage the purchase of their products. There seems to be some room here for the role of awareness-raising to be taken on by companies. 5. What are the objectives of the insurer for next year, 2015? During 2015 the Company will continue expanding in close partnership with Brokers and Banks; we also intend to expand beyond Luanda and to ensure good financial strength with ambitious and sustained growth. Tranquilidade is a long-distance runner, we are not interested in a short-term strategy. The company s shareholders have gradual objectives to be achieved over several years. We want to ensure that our customers and business partners receive a first-rate service. 40 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

41 Interviews with market operators PROTTEJA Seguros PROTTEJA Seguros Agostinho Kapaia Chairman of the Board of Directors 1. Currently, what are the main challenges faced by the insurance and pension fund sector? There are several challenges that need to be addressed, among which we emphasize the need to: (i) Strengthen the insurance culture in Angola. The population has very limited knowledge of these sectors. This weak culture is reflected in the low rates of penetration of insurance and pensions instruments. More promotion of this activity is required to clarify its benefits. (ii) Monitoring of the growth that the sector is recording. This situation requires insurance companies to be ready to respond to new requirements and to provide a better service; (iii) Attracting technical skills; There is a shortage of technical skills. Knowledge levels in specific areas of insurance are limited these need to be strengthened; (iv) Development of new products adapted to the Angolan situation. This could include the introduction of new compulsory insurance products and the revision/adaptation of existing insurance areas. For example, needs may be different depending on the area of the country. We think that this sector could be an economic development engine for the country. The social role that insurance companies play and their role as institutional investors makes them very important players for society. 2. What is the company s approach to these challenges? What measures have been planned? Protteja is still in the initial phase of its activity, so some of our ideas are only plans for the future. We want to work well and contribute to overcome the challenges that have been identified. For example, we would emphasize innovation in the design of products that we hope to be able to offer, with the introduction of micro-insurance into the market. We also intend to approach customers on a more targeted basis so that we can respond better to their needs and win their loyalty. We think that this sector could be an economic development engine for the country. The social role that insurance companies play and their role as institutional investors makes them very important players for society. 3. One of the concerns in the insurance and pension funds sector, at the civil society level, is financial illiteracy. In your opinion, what measures should be taken and what is available to market players for development? Financial illiteracy is a major challenge that must be overcomed by our society this will require inputs from all operators. However, we believe that ARSEG has a very important role here it needs to put out a strong message to the market and influence others to act in a concerted effort to achieve the same goal. ARSEG PwC 41

42 Interviews with market operators PROTTEJA Seguros Protteja was created quite recently. We started operations in 2014 with the introduction of motor and travel insurance. In 2015, we intend to launch three more insurance products, worker s compensation, fire and other damages and liability insurance. 4. As an operator in a business area that tends to be highly regulated, what regulatory developments do you feel need to be introduced in the short term to contribute to a better development of the sector in which you operate? We believe that there are still significant developments that would make the sector function better. We believe that the legislation/regulation of the sector needs to be adapted to the country s situation. Everyone needs to be involved in this process insurance companies, the regulator and other bodies. As legislation, supervision also needs strengthening to ensure its full compliance. More urgently, it is important to set up oversight structures for practices associated with motor and worker s compensation insurance. Other areas that we think need to be addressed relate to a range of initiatives that ARSEG can launch, such as: (i) the introduction of new compulsory insurance, such as import insurance; (ii) review of current compulsory co-insurance arrangements; (iii) creation of the role of insurance ombudsman to ensure better support for customers; (iv) creation of a database, open to the public, identifying bad payers;(v) training initiatives. Regarding the creation of a national reinsurer, we feel that this could be a good initiative, as it may contribute to the development of the Angolan economy. It would certainly help prevent capital leaving our country. 5. What are the company s objectives for next year, 2015? Protteja was created quite recently. We started operations in 2014 with the introduction of motor and travel insurance. Our goal is to grow/kick off our business. In 2015, we intend to launch three more insurance products, worker s compensation, fire and other damages and liability insurance. In 2017, we will introduce transport and industrial risks insurance. Of course, together with this development, we will employ more staff and open points of sale. We want to open our first branch in Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

43 Interviews with market operators Bonws Seguros Bonws Seguros Mário Horta Chairman of the Board of Directors 1. Currently, what are the main challenges faced by the insurance and pension fund sector? One of the major challenges faced by the Angolan insurance sector is to combat the weak insurance culture in the country, both in terms of State authorities, in companies and in individuals. Another quite challenging area is regulation and legislation in the sector. If the State does not help, with legislation, to try to create a more robust insurance culture, the penetration of these products will remain at very low levels, because the cultural issue in Angola will only be reversed when the State decides to adopt a more active role. This issue is also linked to the oversight required to ensure that the market functions properly. For example, there are only three types of compulsory insurance in the country aviation, worker s compensation and motor and, in general, all encounter great resistance because in many cases the required insurance is not in place. Another challenge, that applies to all operators, is to combat poor financial literacy in relation to the insurance industry. We must all contribute to promoting this business area among the population. Finding the technical skills that the sector needs is also something that needs work. There are very few specialized resources. Clearly, technical training is needed, as are mechanisms for the development of talent recognition, development and retention. We want to be known as excellent service providers, in particular in terms of claims management, so creating brand reputation will be crucial for the company. 2. What is the company s approach to these challenges? What measures have been planned? As Bonws was only established recently, the initiatives that we envisage are so far no more than plans. However, we believe that we will make a contribution to overcoming some of the challenges outlined above. We consider the role we play in society to be of the utmost importance, so social responsibility is one of the issues to which we will devote the most attention. We have obligations and rights with customers, the State, business partners and we must conduct ourselves properly with them all. We want to be known as excellent service providers, in particular in terms of claims management, so creating brand reputation will be crucial for the company. We will promote the dissemination of information, either by publication in the media or through the raising of awareness within society, by other means, about the insurance activity, health and work safety. Of course, we will give the greatest possible emphasis to training in technical skills as this is something that the market really lacks. In fact, we wish to emphasize that we intend to create a foundation whose objectives will include training in these priorities. ARSEG PwC 43

44 Interviews with market operators Bonws Seguros 3. One of the concerns in the insurance and pension funds sector at the civil society is financial illiteracy. In your opinion, what measures should be taken and what is available to market players for development? As stated above, a challenge in relation to the insurance and pension funds market is to combat the weak levels of financial literacy. We believe that everyone should contribute to promote and educate the public in these matters. To meet the still low level of education in Angola and the lack of knowledge in these sectors Bonws is developing a project related to the creation of a foundation that aims to give specialized training in insurance. This technical area is still quite weak, so investing in cheaper training courses and supporting their funding will be an asset that is part of the social responsibility of the company. As an illustration of how things are moving a trend that has been observed is that people have already started negotiating their salary packages with the inclusion of health insurance, as they are now starting to feel the need to purchase this service as a result of greater awareness of this issue. Because of this demand and need, health insurance has been introduced by insurance companies. In this area ARSEG should also have responsibilities. Publication, technical training, seminars/forums/lectures are all welcome initiatives. Additionally, we want to emphasize that there is an association for the sector, ASAN, which should also tackle this social problem. However, it seems to have been playing a residual role and this should be reviewed. 4. As an operator in a business area that tends to be highly regulated, what regulatory developments do you feel need to be introduced in the short term to contribute to a better development of the sector in which you operate? As already mentioned, one of the major challenges is suitable regulation and legislation in the insurance and pension funds sector. If the State does not help to achieve this objective, helping to create a more robust insurance culture, penetration will remain at very low levels. Cultural change will only occur in Angola if the State intervenes. 44 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

45 Interviews with market operators Bonws Seguros One of the major challenges is suitable regulation and legislation in the insurance and pension funds sector. Cultural change will only occur in Angola if the State intervenes. (...) it is therefore necessary to legislate accordingly. We feel that there are types of insurance that could become compulsory, such as freight insurance and insurance related to housing. Of course, it is necessary to legislate accordingly. Another situation that concerns us are the prices charged for insurance by several insurers which, in some cases, appear to be dumping. This must be combated, either by legislation or by supervision. We also hope to see legislation that is favourable to Angola in the payment of insurance for the import of goods and merchandise. All such insurance is currently transacted abroad, which leads to outflows of currency and undermines our insurance market. Regarding the regulatory element of the oil industry, we think that the liberalization of this sector would be very important for the market. We know that oil is of vital importance in the economy and as such also this sector can be greatly influenced. We think it is natural for insurers to want to take up a position in this area and a strong and active regulator is therefore needed for this area. If the State liberalizes the market, it will allow greater reserves of foreign exchange to be kept in the country, which will be beneficial to the economy. However, this is a very specific and demanding sector which will require that insurance companies be fully prepared. ARSEG PwC 45

46 Interviews with market operators Bonws Seguros Bonws offers products that address the whole range of cover and capital - in particular, health insurance, workplace accidents, personal injury, liability insurance, freight, property insurance, motor and travel. The oil sector has offshore activities that worth millions. It is easier to evaluate the insurance risk of an accident at work, a car accident, a housing accident, than to evaluate the risk of an accident occurring on an oil rig or an industrial accident on the open seas. We don t believe that there are many insurers in Angola capable of taking on such risks. 5. What are the company s objectives for next year, 2015? For 2015, we aim to be recognized as an entity that provides excellent/high quality services and, if possible, to be a leader in customer satisfaction quality and level. This will lead to customers being willing to pay more for the services they purchase. They will understand that they will receive good service and a good response. At this early stage of the activity, we want to focus mainly on the corporate sector. We don t have as an immediate priority to massificate insurance. Our competitive advantage will be our service and customer satisfaction. We want to establish ourselves as a benchmark company. The Bonws strategy is based on prioritizing the service that it seeks to provide for customers, communicating an image of status, thereby creating competitive advantage over the other companies. Bonws offers products that address the whole range of cover and capital in particular, health insurance, worker s compensation, personal injury, liability insurance, freight, property insurance, motor and travel. In 2015, we will add to our range with a number of products in the Life Line of Business. 46 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

47 Interviews with market operators BIC Seguros BIC Seguros Fátima Monteiro President of the Executive Committee 1. Currently, what are the main challenges faced by the insurance and pension fund sector? The challenges faced by the insurance and pension fund sectors are in different areas, some of which are structural, and include the following: (i) Maturity of the sectors. Although the last three years have seen a significant increase in insurance, these are still emerging sectors, especially when compared with other economies and, from a domestic point of view, with other sectors (e.g. banking); (ii) Improving customer knowledge of these sectors. The insurance culture is still weak. This lack of knowledge is reflected in the still very low penetration index of these instruments in Angola. Although there is already compulsory insurance in Angola, for worker s compensation and motor (made compulsory about two years ago), the penetration index is still low, under 1% of GDP, which demonstrates the urgent need to enhance awareness of these types of services and products; (iii) Overcoming lack of training. The supply of technical expertise is still totally inadequate. It is not a mature market and does not have people who can offer the necessary technical skills. The average level of knowledge in specific areas, such as risk management, actuarial sciences, claims management, among others, needs to be developed; (iv) Development of new products tailored to the Angolan reality. This could involve the introduction of new compulsory insurance, such as multi-risk home insurance, travel/import, life-related and others. Some of the products to be developed, such as Pension Funds, are poorly publicized and not widely accepted; their development therefore depends on changes in regulation and the country s economic development (e.g. promotion of a capital market). Given the weak insurance culture, it is clear that when addressing an issue such as pension funds, which are voluntary in nature and are geared towards saving, there needs to be greater awareness in society; (v) Commitment to diversification of distribution channels, as there is significant focus on traditional media. A diversification scenario could be a new means of reaching the population and of achieving greater penetration in the provinces, as operators are concentrated mainly in Luanda; With the creation of ARSEG, we believe that conditions are in place for the development of these sectors. (vi) Intensifying good supervisory practice and regulation of the sector. With the creation of ARSEG, we believe that the conditions for this development are in place; ARSEG PwC 47

48 Interviews with market operators BIC Seguros (vii) Contributing to improve the reputation of market operators. Associated with a regulation / stronger supervision and a maturing market, the best and most credible entities will survive. The credibility of the insurance sector is very important to gain customer confidence. Regarding the Pension Fund sector, we would also highlight the importance of raising awareness in society about the importance of saving (foster a savings culture) and the improvement needed in terms of the supply of products and profitability levels. Finally, also in this area, there are specific technical skills that need to be strengthened. 2. What is the company s approach to these challenges? What measures have been planned? We believe that BIC Seguros has answers for the various challenges that the sectors face. BIC Seguros operates in Angola though 200 agencies, which will lead to a significant strengthening/ improvement of the current insurance culture, as it will bring the sector closer to the Angolan population. This will also result in an increase in the penetration index. One of the strategic objectives of this Insurance Company is to offer a wide range of products tailored to the population, through careful and targeted market analysis, in terms of existing and potential customers. For example, for BIC Seguros, the life line of business, which has a limited presence in the industry in general, already represents about 80% of output, as a result of synergies with the bank. The credibility of the insurance sector is very important to gain customer confidence. We are committed to create a savings culture, especially to inform the population about products that complement retirement pensions. We anticipate the inclusion of alternatives to traditional distribution channels, with a focus, in addition to the banking channel (Bancassurance) on other distribution channels, such as linking the sale of insurance to car dealers and travel agencies, as an example. Another of our strategic focuses is employee training and career management, in order to retain and develop talent. We will seek to provide on the job training for our national staff so that the skills acquired can later be cascaded internally. We also believe that BIC Insurance has a governance model that is tailored to the local reality and needs and to compliance with the regulatory requirements. We wish to take this opportunity to mention that this Company recently made a major investment of significant sums of money in its information systems. At present, about 80% of the bank s branches already have a connected platform for the decentralized issuance of insurance products. This shows our commitment to the industry. 48 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

49 Interviews with market operators BIC Seguros 80% 80% of the bank s branches already have a connected platform for the decentralized issuance of insurance products. 3. One of the concerns in the insurance and pension funds sector, at the civil society level, is financial illiteracy. In your opinion, what measures should be taken and what is available to market players for development? Financial illiteracy remains a problem in Angola and needs to be addressed through awareness campaigns by the institutions targeting the population. ARSEG plays a central role in this field. BIC Seguros is trying to solve the problem of financial illiteracy through specific initiatives, such as the publication of explanatory leaflets or communication campaigns (seminars and training) through all its distribution channels. Currently, we believe that is necessary to develop internal communications so that external communications can be devised to a later stage. In other words, it is crucial to communicate internally and to make known to all partners and employees the message to be sent to the prospective customer. Diversification of distribution channels means that the message reaches to more people, leading to a reduction in the level of illiteracy in the population. Supervisory actions could have an important role here, particularly in compulsory insurance, because, besides ensuring full compliance with practices, they can play an educational role. Initiatives relating to the importance/role of insurance in society can be undertaken with businesses and other institutions. For example, the national police have been engaged in a number of campaigns about motor insurance in collaboration with ARSEG itself. However, driving cars without insurance is still very common pratice. Financial illiteracy remains a problem in Angola and needs to be addressed through awareness campaigns by the institutions targeting the population. ARSEG plays a central role in this area. (...) BIC Seguros has sought to solve the problem through specific initiatives. Greater collaboration with ARSEG is needed. General inspection of work can also make a contribution, particularly in terms of worker s compensation insurance, because companies do not always comply with the required levels of insurance. 4. As an operator in a business area that tends to be highly regulated, what regulatory developments do you feel need to be introduced in the short term to contribute to a better development of the sector in which you operate? Once again, we believe that ARSEG has a central role in this area. Not only by acting in areas within its remit, but also as a source of pressure and stimulus for other regulatory bodies (for example at tax level). The regulator must update and adapt legislation related to insurance business to the current situation in Angola. For example, the current rates for compulsory insurance and the mortality tables are not fit for purpose. ARSEG PwC 49

50 Interviews with market operators BIC Seguros The pension funds sector also needs specific legislation. Generally, and by their very nature, pension funds are linked to capital markets. There is still no active market in Angola and it is very difficult to design attractive products of a financial nature. The regulatory element (including taxes) could contribute to increasing their attractiveness. Another important highlight relates not so much to creating or amending regulations, but to guaranteeing their applicability. A strong hand is needed to give credibility to the sector. It is very important for the regulator to act so as to ensure that all operators comply and to certify their financial soundness. This action will give more credibility to the sector. 5. What are the company s objectives for next year, 2015? In general, the banking market and the insurance market are similar in terms of their evolution. In the last 10 years, the banking market has boomed and is now a market bigger than insurance. BIC Seguros aims to bring something innovative for the market, by contributing to the acceleration of its development and growth and by strengthening and developing the existing insurance culture. In nine years of operation, the bank has achieved a considerable market share in Angola and is the fourth largest private bank in the country. The project relating to the insurance company has the same ambition to adopt a standard of excellence and leadership in the insurance sector, with regards to BIM. In terms of positioning, there will be a major focus on the life line of business. We do not intend to position ourselves in the market only based on price. We want to charge fair prices that are suitable for the risks assumed. We will position ourselves in the service to be provided with quick responses of excellence, primarily in claims management. It is crucial to respond effectively to customers. We are also a company that wants to be in the whole country, not just focused on Luanda. A key aim is also to train people from scratch if possible Angolan nationals. In terms of the group, 99% are nationals. Finally, 2015 will be the effectively year of launch of this Insurance company. BIC Seguros already sells all insurance products of the Non-Life Line of Business, except for health insurance, which will also be launched in In the Life Line of Business, for now, only the risk component is being operated. The marketing of financial products and pension funds are not currently planned. The project relating to the insurance company has the same ambition to adopt a standard of excellence and leadership in the insurance sector (...). We do not intend to position ourselves in the market only based on price. We want to charge fair prices that are suitable for the risks assumed. We are also a company that wants to be in the whole country, not just focused on Luanda. 50 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

51 Interviews with market operators Fénix Pension Fund Management Companies Fénix João de Almeida Neto Head Manager 1. Currently, what are the main challenges faced by the insurance and pension fund sector? The pension fund industry is a very specific area which is not very well known and that is still small. There are many challenges to be faced and the various players in this market are responsible for contributing to the sector s development. We therefore emphasize the need to: (i) raise public awareness about the importance of saving, i.e., to cultivate the habit of saving; (ii) update current legislation; (iii) provide full and timely information on the sector; (iv) attract, train and retain human resources with technical skills in this area (e.g. actuaries, IT staff and investment managers). Although this is a sector that is still small, we believe that the foundations can be laid for the creation of an association that defends the interests of pension funds management companies. ASAN does not answer for pension fund management companies, which makes the creation of a body to defend the sector an urgent priority. 2. What is the approach of the pension fund manager to these challenges? What measures have been planned? Fénix-Pensões, SA has contributed to overcoming some of the identified challenges. At the level of market awareness level of relevance to this sector, we plan to be working continually to make this industry known. We have made several presentations on these subjects to portfolio and potential customers. We prepare technical reports on these matters for a range of entities. We have also delivered several lectures of an educational nature in schools to raise awareness about saving in the youngest sectors of the population. At the level of financial reporting, we have been working to ensure and comply with good and timely provision of financial information. We contribute actively to the development of our employees, through growth programmes ranging from on the job training to academic training. The pension fund industry is a very specific area which is not very well known and still small. Fénix-Pensões, SA has contributed to overcoming some of the identified challenges. ARSEG PwC 51

52 Interviews with market operators Fénix 3. One of the concerns in the insurance and pension funds sector at the civil society level, is financial illiteracy. In your opinion, what measures should be taken and what is available to market players for development? Financial illiteracy is a very current issue in the Angolan situation, as the weak savings culture is. To address this issue, we believe that we must all consider it in depth and contribute to structural change in society. We suggest starting with education, with the introduction of curriculum subjects in schools to address the issue of insurance/pension funds and, above all, to encourage a savings culture in younger people. Financial education needs to be in the curriculum from the start. In addition to education, the promotion of other activities should be considered for example, seminars, forums, talks on pension funds, among others. The population needs to see that the future retirement trend is that there will ever exist fewer active workers to pay the pensions of a growing number of pensioners. The greater the development of pension funds the greater the development of the economy. The population needs to see that the future retirement trend is that there will ever exist fewer active workers to pay the pensions of a growing number of pensioners. This should be a concern for Angolans, as it will have implications for their retirement and their need to start saving early. 4. As an operator in a business area that tends to be highly regulated, what regulatory developments do you feel need to be introduced in the short term to contribute to a better development of the sector in which you operate? Pension funds are engines of economic leverage and growth. As such, the greater the development of pension funds the greater the development of the economy. We feel that indepth work should be carried out at legislative/regulatory level to enable existing arrangements to be adapted to suit the real situation. ARSEG has an important role here, not only in the creation of regulation, but also in its influence over other institutions, in particular with regarding taxation. The tax component needs to be addressed, not only to make investment in this type of products more attractive, but also to make them more profitable. Tax changes may be important to bolster the savings culture. For example, at the level of fund profitability, the Tax on Invested Capital involves many penalties. This is not suitable for the current situation. 52 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

53 Interviews with market operators Fénix Another highly relevant area, which needs to be reviewed by the regulator, relates to investments made by pension funds. The limits of prudential diversification are unsuitable, not only for the country s situation, but also in their percentage composition. Although they encourage prudent management, it becomes impractical to ensure the imposed limits. The legislation on the governance mechanisms of these companies needs to be adapted. Functions such as internal audit, compliance, risk management, among others, are relevant in this sector. Accordingly, the concept of corporate governance should be addressed to assess the appropriateness of its execution. The transfer of pension funds, in terms of their management, is something that also needs to be reviewed. This is a somewhat lengthy and bureaucratic process which means it often penalizes the various entities. We believe that the mechanics of the calculation of contributions to the regulator need to be reviewed. We do not feel it makes sense to contribute on the basis of fixed rates that are the same for everyone. The volume of the assets under management needs to be considered and a levy should be applied which is progressively reduced as this volume/value grows. Finally, we feel that the creation of pension fund association is a matter to be considerated. We believe this might have more power than simply creating an ombudsman s role. The association could have a more significant role in the defence of customers and in the promotion of knowledge. 5. What are the company s objectives for next year, 2015? In relation to our objectives for 2015, we want to continue contributing to rase awareness on the importance of saving and of these savings instruments in retirement. We want to raise the awareness of young people in schools and the general public, by other media, such as radio, television and press. We also plan to increase the number of pension funds under management, the number of participants and to improve their management, both in terms of offering last generation IT solutions and through the training of our technical staff. We strive to improve our market visibility, by continuing to respond more effectively to all our stakeholders and to manage the business better and better. Finally, we feel that the creation of a pension fund association is a matter to be consideration. The association could have a more significant role in the defence of customers and in the promotion of knowledge. ARSEG PwC 53

54 Interviews with market operators BESAACTIF BESAACTIF Nuno Moura Coutinho Director The biggest challenge facing the sector is to raise the awareness of the Angolan population about the need to create a savings culture. BESAACTIF has contributed to the promotion of this activity, seeking to cultivate a savings culture in society. 1. Currently, what are the main challenges faced by the insurance and pension fund sector? There are many challenges to be faced to enable the pension funds sector to evolve positively. The biggest current challenge facing the sector is to raise the awareness of the Angolan population about the need to create a savings culture. The local situation is very difficult because the population is focused on immediate returns and short-term investments. This approach clashes with the spirit of pension funds. Pensions are longterm products, so they are difficult to sell. However, we believe that this is a challenge to be embraced by all operators so that the desired results can be achieved. There is a tremendous need for qualified human resources. There is an urgent need to strengthen technical areas, such as risk management, actuarial science and investment management, among others. Another challenge relates to communication with people and companies, about how best to reach customers. It is important to inform people and companies about the utility and benefits of insurance and pension funds and their repayment conditions and to convince them to sign up to them. It could be interesting to challenge companies to create protection mechanisms, for pension purposes for their employees pension funds could be a solution. 2. What is the approach of the company to these challenges? What measures have been planned? BESAACTIF has contributed to the promotion of this activity, seeking to cultivate a savings culture in society. We quite regularly make presentations to customers and the market in general on this issue. We believe that it is crucial to prioritize communication, presentation and advertising, especially in the Jornal de Angola. In terms of enhancing technical skills, the company encourages regular training for its staff. 3. One of the concerns in the insurance and pension funds sector, at the civil society level, is financial illiteracy. In your opinion, what measures should be taken and what is available to market players for development? This has partly been answered in previous questions. We think that there needs to be a concerted action among the various operators to educate society about the importance of saving and about this specific business area. We believe that this awareness raising needs to be gradual and must ultimately be extended to everyone. That is, it may be more effective to start with companies and only later to reach individuals. However, to convince companies not only to sign up to the idea, but also to apply it, the promotion will need to be combined with other factors, such as tax incentives. Therefore, by achieving positive outcomes at corporate level, we will find it easier to reach individuals. 54 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

55 Interviews with market operators BESAACTIF We believe that it is crucial to prioritize communication, presentation and advertising, especially in the Jornal de Angola. We want to continue to ensure the quality of the services provided and, if possible, improve them and gain a reputation for good business performance. 4. As an operator in a business area that tends to be highly regulated, what regulatory developments do you feel need to be introduced in the short term to contribute to a better development of the sector in which you operate? In general, we believe that pension fund legislation/regulation needs to be updated/revised to meet the needs and situation in Angola today. Current legislation is being revised, but this has been a slow process. Obviously, irrespective of any concerted action, the regulator plays an overarching role here. Not only with its own regulation, but also as an agent with influence over other entities. One of the areas that we believe it is most important to review relates to investment-related provisions, particularly in relation to prudential diversification policies and rules. Making the situation fit in with what is required under the current regulations is very difficult for a company. When the capital market liberalizes, as is expected, we may see developments in this area. Another area that needs adjustment is the existing tax regime related to pension funds. As noted above, without benefits or more favourable laws suited for the sector, the market will find difficult to adhere to change. Again, linked to the above, this could start with enterprises, for example, in relation to contributions and then seek to reach individuals. We have focused on fiscal issues as the market element that most encourages membership of pension funds, but there must be other aspects and, here too, ARSEG needs to launch initiatives. Taking the example of Portugal, tax benefits have been very positive. However, as soon as the financial crisis began, people stopped joining pension funds. This was a situation in which the tax benefits were not a sufficient draw for people to subscribe to pension funds. Two other aspects that we believe need to be revisited relate to: (i) current arrangements for contributions, which need to be simplified and made more transparent; (ii) the transfer of pension funds between managers as this is a very bureaucratic and slow process which involves many entities. Finally, although it is a rather small, but growing, market, we feel that it makes sense to create an association to defend the sector. 5. What are the company s objectives for next year, 2015? Broadly speaking, 2015 will be a year of continuity and consolidation of what we have been doing. We want to continue to ensure the quality of the services provided and, if possible, improve them and gain a reputation for good business performance. ARSEG PwC 55

56 5 The Challenges and opportunities in the insurance and pension funds market in Angola Angolan Insurance Regulation and Supervision Agency, established by Presidential Decree No. 141/13, of 27 September, which approves its organic statute, is the body responsible for regulating, supervising and monitoring the operation of the insurance and pension funds market and controlling the development of the market and maintaining a more balanced competitive discipline among the supervised entities. The Angolan insurance and pension fund market is a fast growing sector of the national economy that is potentially strong and open to large investments, with a vast untapped market, supported by a low insurance and pension fund density index, as well as a low penetration index. It is the intention of the Regulator to establish greater interaction between the various operators, not only through ASAN and AMSA, but also with the Regulator and customers, to mitigate the negative impacts of possible misunderstandings, especially in the settlement of claims, concerted actions to generate global positive externalities, access to the FGA, harmonization of staff training programmes and others. 56 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

57 ARSEG intends, through interaction with the public, to undertake the creation of programmes on radio and television, to raise the literacy and financial education levels of the population in their different social spheres. Another major effort that ARSEG aims to undertake, through interaction with the public, is the creation of programmes on radio and television, to raise the literacy and financial education levels of the population in their different social spheres. Moreover, ARSEG seeks to discipline the market, especially with regard to the creation of insurance products by insurers, to establish a more disciplined process preceded by an evaluation by the Regulator before their release, to safeguard the guarantees contracted by insurance policyholders and to avoid misleading advertising in this sector. ARSEG is committed to the proper operation of the market that it supervises. In addition to the various challenges, there is the matter of health insurance, which needs a new legal form given its specifics and nature; in this area, in addition to the providers (clinics, hospitals and others), there is a need for proper control of insurers operating in this area and, particularly, approval of the health plans they offer. The supervisory body intends to maintain close control over the companies that manage the health plans offered by insurance companies. ARSEG s priorities include the creation of tax incentives for specific lines of business, particularly for life insurance and pension funds. These are areas that, of themselves, are savings that generate investment in other areas of the real economy, highlighting the role of institutional investors. In terms of supervision, there is a long way to go, but there has been new momentum since ARSEG began making direct inspections of companies. ARSEG is aware that financial education needs to start at an early age which in itself implies the inclusion of these subjects in the school curriculum, from primary to higher education. In terms of supervision, there is a long way to go, but there has been new momentum since ARSEG began making direct inspections of companies. This is a process that has led the supervisor to assess the real financial, technical and human capacity of the supervised entities. ARSEG PwC 57

58 6 Global Macroeconomic Environment Macroeconomic Background The world has witnessed an exponential growth of the various world powers, reflected in a strong development of infrastructure, services provided, products sold, among others. Globalization and increasing knowledge sharing have brought transformation of formerly underdeveloped countries into emerging powers in the world economy. According to recent IMF forecasts for the current global economic context, a slowdown is expected in growth in emerging countries such as China, India and Brazil and an economic recovery in developed countries, particularly in Europe. Overall, the world economy is likely to grow less. Gross Domestic Product Global GDP figures have been on an upward trend that should continue in When we analyse the evolution of GDP by region, we clearly see a disparity between regions. 58 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

59 GDP, (total of 188 countries) (figures in billions Euro ) 2014 (P) Source: African Economic Outlook (P) - Forecast Real GDP growth by region and average (figures in percentages) World Developed markets North America Eastern Europe Advanced Asia Oceania Emerging markets Latin America and Caribbean Central and Eastern Europe Africa Middle East and Central Africa Average annual growth rate Average annual growth rate 2013 Source: Oxford Economics, WIIW, Swiss Re Economic Research & Consulting, African Economic Outlook ARSEG PwC 59

60 Macroeconomic Environment In 2013, global GDP growth was about 2.8%, slightly below the average growth in the last 10 years. Supporting this growth, we can highlight the weight of emerging countries, particularly Asia, and the contribution of some developed economies, particularly United States, where GDP grew 1.9% and Western Europe, with an increase of 0.3%. The growth in the United States is explained mainly by the increase in domestic consumption and investment. Western Europe is beginning to show some signs of economic recovery. However, the differences between the core countries and the periphery remains. Contribution to world GDP growth, (figures in percentages) 100% 80% 60% 40% 20% 0% -20% (P) 2015 (P) BRICs USA Eurozone Others Source: PwC Economics, IMF *measured in dollars at 2013 constant prices, based on the sum of 185 economies. (P) - Forecast It is estimated that the American economy will grow faster than the emerging economies of the so-called BRICs, the Eurozone countries and other regions. Different economies contribute to the formation and growth of global GDP at different speeds. It is estimated that the American economy will grow faster than the emerging economies of the so-called BRICs 1, the Eurozone countries and other regions. Linked to the expected growth of the US economy, unemployment during 2014 dropped to less than 6%, and oil prices also felt. These factors will contribute to an increase in domestic consumption. Additionally, in 2015, the US dollar is expected to see an appreciation in about 3.2%, which will also help to strengthen this growth. Some contraction is expected, also in the economies of Russia and Brazil. Given the low oil prices and economic sanctions, it is estimated that Russian's GDP will shrink in BRIC - Brazil, Russia, India and China 60 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

61 Macroeconomic Environment GDP growth World vs Sub-Saharan Africa For 2014, it is projected that growth in Sub-Saharan Africa will be 2% higher than world growth. Both lines show similar trends, although current world GDP most often shows greater changes in the same direction. It is expected that the trend in the combined GDP of the four largest economies in sub-saharan Africa (PPP) Nigeria, South Africa, Angola and Ethiopia will exceed global economic performance. For investors, this is another sign of the potential of sub-saharan Africa as a region to invest. Real GDP growth, (figures in percentages) (P) World Sub-Saharan Africa Source: PwC Global Economy Watch, January 2015 (P) - Forecast ARSEG PwC 61

62 Macroeconomic Environment Interest rates Regarding interest rates, we saw a sharp widespread fall in the main reference rates during 2012 and a stabilization in The short and medium-term outlook point to 2013 levels and trend will remain as no major changes in the behaviour of the central banks are expected. No significant changes are foreseen in the behaviour of the central banks. Interest rates, (figures in percentages) Jan Abr Jul Out Jan Abr Jul Out Jan Abr Jul Out Jan Abr Jul Out USA 3-month Libor GBP 3-month Libor 3-month Euribor Source: National Development Plan , Republic of Angola, Ministry of Planning and Territorial Development The 3 month Euribor rate showed greater fluctuations, particularly in 2012, due to the evolution of the crisis in the Eurozone and the investment stimuli granted by the European Central Bank, with the reduction in its reference rate. By the end of 2013, the Euribor remained at around 0.2%. The Libor, USA and GBP rates, albeit with less pronounced fluctuations, showed similar behaviour even though with higher rates than Euribor from the end of For the period between 2014 and 2016, projections are for a rate of about 0.1%. 62 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

63 Macroeconomic Environment The current oil situation The recent volatility in the price of a barrel of oil, which reached its lowest level for years, the development of shale oil exploration in the United States and the slowdown of the world economy are factors that may influence Angola's current growth projections. In this scenario, the economy may be weakened. However, this may be an opportunity for non-oil sectors to prove their value to the economy. The economy may be weakened. However, this may be an opportunity for non-oil sectors. Evolution of crude oil and Brent prices, (figures in Euros) Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar Crude Brent Source: Bloomberg, February 2015 Currently, the Angolan economy still depends, to a large extent, on the oil sector and its ambition to reduce this dependence in the future by promoting agriculture, industry, logistics services, telecommunications and technology is already public knowledge. Despite the production of diamonds contributing only 0.6% of GDP in 2012, the sector still has a strong growth potential and, as previously indicated, it is the world's fourth largest producer of this natural resource. The Angolan government estimates that economic growth in 2014 slowed to 4.4%. However, prospects for 2015 are not very encouraging due to the fall in oil prices in the international markets which will have repercussions on the Angolan economy. This fall in the oil prices result from supply side factors, specifically the OPEC (Organization of Petroleum Exporting Countries) decision to keep oil production levels unchanged at 30 million barrels a day, and from demand factors, in particular the weakness of economic activity in the Eurozone. The appreciation of the dollar is also an explanatory factor in this trend. ARSEG PwC 63

64 Macroeconomic Environment World oil demand (Thousands of barrels per day) OECD Americas 23,6 24,1 24,0 24,1 Europe 13,8 13,6 13,5 13,4 Asia/Oceania 8,5 8,3 8,1 8,0 OECD Total 45,9 46,1 45,6 45,6 Non-OECD Former USSR 4,6 4,7 4,8 4,6 Europe 0,6 0,6 0,7 0,7 China 9,8 10,1 10,3 10,6 Other Asia 11,6 11,9 12,1 12,5 Latin America 6,4 6,6 6,8 6,9 Middle East 7,7 7,9 8,1 8,3 Africa 3,8 3,8 3,9 4,1 Non-OECD Total 44,6 45,7 46,8 47,8 Total demand 90,5 91,8 92,4 93,3 World oil supply (Thousands of barrels per day) OECD Americas 15,8 17,1 18,7 19,7 Europe 3,5 3,3 3,3 3,2 Asia/Oceania 0,6 0,5 0,5 0,5 OECD Total 19,8 20,9 22,5 23,5 Non-OECD Former USSR 13,7 13,9 13,9 13,8 Europe 0,1 0,1 0,1 0,1 China 4,2 4,2 4,2 4,2 Other Asia 3,6 3,5 3,4 3,5 Americas 4,2 4,2 4,4 4,7 Middle East 1,5 1,4 1,3 1,3 Africa 2,2 2,3 2,3 2,3 Non-OECD Total 29,5 29,5 29,6 29,9 Processing gains 2,1 2,2 2,2 2,2 Biofuels 1,9 2,0 2,2 2,3 Non-OECD Total 53,3 54,6 56,5 57,8 OPEC Crude 32,3 30,5 LNG 6,2 6,3 6,4 6,7 OPEC Total 37,5 36,7 Total Supply 90,8 91,4 Source: IEA World Market Report, November Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

65 Macroeconomic Environment Exports In recent decades, there has been a change in the international trade scenario, with exports from developing countries occupying a growing share of world trade. There has also been a change in export destinations, with developing countries increasing their exports to other developing countries. Share of regional exports to developed and developing countries and countries in transition, (figures in percentages) a) Developing countries The increase in the volume of exports from developing countries in international trade is mainly a result of the rapid growth in exports of industrial goods from East Asia. The exports volume of this region's exports of industrial goods in the global total of industrial exports grew from about 20% in 1995 to approximately 35% in b) Developed countries 80 The emergence of China in the international trade panorama has been one of the main drivers of growth, with the country increasing its exports volume of industrial goods in global industrial exports to around 17.3% in Developed economies Developing economies Economies in transition Source: World Economic Situation and Prospects 2015, United Nations, ARSEG PwC 65

66 Macroeconomic Environment Another significant change, in terms of international trade in industrial goods, is the result of the performance of US exports, with the country recording a reduction of approximately 4%. On the other hand, the European Union remains leader in the export of industrial goods. However, despite its leadership in the international context, between 1995 and 2013 the European Union saw its share of exports of industrial goods decline from approximately 44% to 37%. Within the industrial sector, a number of changes were recorded, particularly as a result of the expansion of the overall value chain worldwide. Along with the increase in exports of industrial goods, East Asia saw its share of electronic exports increase to around 50% in 2013, with a corresponding decline in the share of exports of electronic from countries such as Japan, the US and some European countries. However, while East Asian economies, such as the Republic of Korea and Taiwan, have seen an increase in exports of intermediate goods to other countries, China still needs to import large volumes of productive factors to be able to meet its export needs. Which, in turn, results in limited inputs at the level of the production process, which remains heavily dependent on imports. This results in pressure on margins, given that bargaining power with customers is dependent on power over suppliers. 50% East Asia saw its share of exports of electronic increase to around 50% in The European Union remains a leader in the export of industrial goods. 66 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

67 Macroeconomic Environment Regional share of world industrial exports (figures in percentages) United States China Africa Latin America and Caribbean Southwest Asia East Asia (including China) West Asia Commonwealth European countries Union Source: World Economic Situation and Prospects 2015, United Nations, Regarding trends, these exports of primary products are, to a certain extent, different, as a result of changes in commodity prices over the last few years. The European Union has experienced a significant fall in its share of raw materials exports, from 32% in 1995 to around 22% in However, over the same period, some regions experienced an increase in their primary commodity market shares, with the largest increases being recorded in West Asia. Exports of services in the world have continued to increase in recent years. Exports of services increased by 5.5% in 2013 and by 7% in the first quarter of 2014 at current prices. As a result, exports of services amounted to about 20% of total exports. The trend in exports of services has been driven by developing countries, particularly in Asia and Latin America, as well as economies in transition. Emerging countries such as China and Latin America have experienced rapid expansion. Between 2000 and 2013, in relation to the percentage of developing countries in the world, exports rose from 23% to 30%, particularly in construction and IT services. ARSEG PwC 67

68 Macroeconomic Environment Unemployment rate Evolution of the unemployment rate in the world and in the different regions, 2014 and 2015 (figures in percentages) 12,5% 12,5% 11,0% 11,0% 7,8% 7,7% 7,8% 7,5% 7,7% 7,7% 6,6% 6,8% 5,9% 5,9% 4,6% 4,8% 4,3% 4,3% 3,9% 3,9% It is estimated that the global unemployment rate will remain constant in 2015, year-on-year, as is the case in regions dominated by developing countries (North Africa, Middle East and sub-saharan Africa). By contrast, the regions where developed countries and emerging economies are located, show both positive and negative changes with estimates indicating that unemployment in developed countries and in the European Union should show in the future a more positive signs of change. North Africa Middle East Developed countries and European Union Central and South Eastern Europe (non-eu) and CIS * Sub- -Saharan Africa Latin America and Caribbean World East Asia Southwest Asia and Pacific Source: Statista The Statistics Portal *CIS Commonwealth of Independent States, including 11 republics of the former Soviet Union Southern Asia World inflation rate Average inflation figures, (figures in percentages) 9,5% 9,6% 9,3% 8,6% 9,2% 8% 6,6% 7,5% 6,7% 7,0% 7,4% 7,2% 6,5% 6,1% 5,2% 4,2% 3,9% 3,8% 3,9% 3,8% 3,7% 2,7% 2,7% 2,5% 2,0% 1,4% 1,3% 1,6% 0,5% 1,8% 0,9% 2,0% 2,0% 1,4% 1,2% (P) 2015 (P) 2016 (P) 2017 (P) World Advanced Economies Eurozone Middle East and North Africa Sub-Saharan Africa Source: IMF International Monetary Fund, Inflation / Average consumption prices, October 2014 (P) - Forecast 68 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

69 Macroeconomic Environment Inflation pressure will remain moderate. Activity remains substantially below the potential in the advanced economies which should be near or slightly below the potential value of emerging markets and developing economies, such as the Middle East, North Africa and Sub- -Saharan Africa. Global inflation in 2014 fell to 3.8% from 5.2% in 2011 and it is expected to continue falling until The declines in commodity prices, especially of oil and food, have been the common force underlying recent falls in world headline, particularly in foreign exchange rates against the US dollar. In advanced economies, inflation is currently below the values of the past and below longer-term inflation expectations, at around 1.6% on average in 2014, with expected inflation of 2% in Higher rates will return gradually, as it is expected that production can return to its potential, albeit slowly. In the Eurozone, inflation has been falling since the end of 2011 and fell below 1% from the fourth quarter of Indeed, in 2013, inflation as a whole was 1.3%, a value that is close to the lower limit of the European Central Bank (ECB) forecast at the end of The International Monetary Fund (IMF) estimates that the Eurozone may see an inflation of 1.4% in The regions of the Middle East, North Africa and Sub-Saharan Africa are recording higher inflation than the Eurozone, which has also been falling. 1,4% The International Monetary Fund (IMF) estimates that the Eurozone may see an inflation of 1.4% in ARSEG PwC 69

70 Macroeconomic Environment Macroeconomic Environment in Angola Introduction Angola has been one of the fastest growing economies in the world in recent years, and this trend is expected to continue in the coming years. Given the international scene, the indicators show that Angola can converge quickly for the best growth rates. Angola stands out in Sub-Saharan Africa, where it is considered one of the major powers, together with South Africa, as a result of its potential in natural resources, particularly oil. Angola is experiencing strong growth as a result of national reconstruction policies and monetary and financial stabilization policies. Gross Domestic Product In recent years, the country has recorded major levels of growth of gross domestic product GDP. Between 2005 and 2008, Angola recorded an annual average growth rate of more than 17%, which was interrupted by the global financial crisis, leading to a drop in oil production. Following the crisis in late 2009, the country underwent an adjustment programme between the IMF and the government, which was successful. During this period, average annual GDP growth rose from 2.4% in 2009 to 3.9% in Following the crisis, at the end of 2009, average annual GDP growth rose from 2.4% in 2009 to 3.9% in Angola is experiencing strong growth as a result of national reconstruction policies and monetary and financial stabilization policies. 70 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

71 Macroeconomic Environment GDP growth in Angola, (figures in percentages) Forecast (P) 2014 (P) 2016 (P) Angola Sub-Saharan Africa Source: Oxford Economics/World Bank (P) - Forecast The programme mitigated the external budgetary imbalance and in addiction, the growth recorded in the oil sector was crucial. The Angolan economy returned to growth in 2010, with oil prices recovering and output in exploration blocks increasing. Despite experiencing a period of relatively slow growth, Angolan GDP made a rapid return to growth in 2012 and 2013, with rates of 5.2% and 4.1%, respectively. Despite expectations, the economy of Africa's second largest oil producer grew less than expected in 2013, as estimated growth was an increase of 7.1%. According to World Bank forecasts, it is estimated that GDP will grow 5.2%, 6.5% and 6.8% in 2014, 2015 and 2016, respectively. Expected growth for this period is mainly the result of expectations growth in oil exports, stabilization of the average price of oil and public investment in major infrastructure. The growth predictions for this period are mainly the result of growth expectations in oil exports, stabilization in the average price of oil and strong public investment in major infrastructures. ARSEG PwC 71

72 Macroeconomic Environment GDP growth rate in Angola, (figures in percentages) , ,8% 140,000 GDP growth rate (percentage) , , ,000 6,8% 6,5% 6 5,2% 5,2% 60,000 3,9% 4,1% 4 3,4% 40,000 GDP (in US dollars) 2 2,4% 20, (p) 2015(p) 2016(p) GDP (in US dollars) Annual GDP growth (%) Source: African Economic Outlook calculations, November 2014 Evolution of GDP, (figures in percentages) ,1 7,3 7,4 7,1 6,6 4,3 9,7 8 4,5 11,2 8,8 4 9,2 7,5 3,8 10,4 4,3 - (5) (10) -9,8 (15) 2012 prog 2013 (P) 2014 (P) 2015 (P) 2016 (P) 2017 (P) Non-oil GDP GDP (mp) Oil GDP Fonte: BNA (P) - Forecast 72 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

73 Macroeconomic Environment GDP composition by sector (figures in percentages) ,9% 4,0% 1,1% 0,6% 0,2% 27,4% 12,0% 0,3% 2,5% 1,2% 9,3% 7,3% 43,0% 10,8% 8,6% 29,7% Oil Diamonds and others Merchant Services Energy Fisheries and fish products Agriculture Construction Transportation Industry Source: INE Angola, through BPI Research 2015 Oil activity in 2014 represented 29.7% of Angola's GDP. However, sectors such as manufacturing, market services, energy and construction, represent engines of growth, given their exposure to population growth and rising investments in infrastructure. The construction and manufacturing sectors together represent 19.4% of GDP. The construction sector (10.8%) has grown as a result of a strong Government commitment to the reconstruction and rehabilitation of the infrastructure supporting production and the population. The industrial sector (8.6%) is currently characterized by high levels of imports, which is leading to a strategic prioritization of incentives for domestic production. Trade contributes 27.4% of GDP, resulting from the "boom" in domestic consumption and private investment in recent years. In the agricultural sector, which represents 12% of GDP, the Government has been focusing on domestic production through various initiatives, such as: incentive programmes; credit lines; strong public investment; marketing campaigns, namely to boost purchases of Angolan products and services. The Government also intends to foster the creation of agro-industrial centres with the aim of creating synergies between agricultural and livestock productions and their processes of transformation, storage and logistics. Agriculture, industry, energy, construction and trade have contributed increasingly to diversification of the economy and a reduction in dependence on the oil sector. However, much remains to be done, as Angola is still heavily dependent on imports of a relatively broad basket of products. It is expected that, over time, further growth will be recorded in the agrifood, industrial and logistics sectors, supporting an increase in private consumption. ARSEG PwC 73

74 Macroeconomic Environment Per capita income The economic growth in the recent years has led to an increase in the available disposable income. Angola has slightly higher per capita income growth rates than South Africa and it is expected that this trend will continue at least until Evolution of disposable income per capita, (figures in percentages) 1,6 1,4 1,2 1,0 0,8 0,6 0,4 0, (P) 2015 (P) Angola USA South Africa Source: The Economist Intelligence (P) - Forecast Unemployment rate The slow pace of economic diversification, a factor that could boost job creation, has not yet produced the effects set forth in the Angolan National Development Plan, with the unemployment rate at around 26% in Unemployment rate, (figures in percentages) 35% 29% 25% 25% 25% 25% 26% 25% 26% The country's authorities have been taking steps to increase public and private investment, which grew 29% in The State Budget for 2013 foresaw an increase of 60% in this type of expenditure. Given current oil dependency, the Angolan economy is still quite vulnerable to external shocks, which may condition the medium-term investment outlook and, therefore, unemployment levels Source: Trading Economics Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

75 Macroeconomic Environment Inflation rate in Angola The Consumer Price Index (CPI) has been falling over the past few years, with inflation reaching 8.8% in This decrease is due mainly to fluctuations in oil prices, the global decline in food prices and the efforts of the National Bank of Angola to stabilize the nominal exchange rate. For the coming years, the Government will seek to stabilize the inflation rate below 10%. It should also be noted that fluctuations in raw material prices in the international market and the fight against inflation may change cyclical market conditions and the country's macroeconomic risk. Evolution of inflation in Angola, (figures in percentages) 13,7% 13,5% 12,3% 8,8% 7,2% 7,0% (P) 2015 (P) Source: Oxford Economics (P) - Forecast Change in inflation, (figures in percentages) (P) Angola Africa South Africa Mozambique (p) projection Source: African Economic Outlook (P) - Forecast ARSEG PwC 75

76 Macroeconomic Environment Exchange rate Evolution of the exchange rate, Jan - 11 Mar - 11 Mai - 11 Jul - 11 Set- 11 Nov - 11 Jan - 12 Mar - 12 Mai - 12 Jul - 12 Set - 12 Nov - 12 Jan - 13 Mar - 13 Mai - 13 Jul - 13 Set - 13 Nov - 13 Jan - 14 Mar - 14 Mai - 14 Jul - 14 Set - 14 Nov - 14 Jan - 15 Mar - 15 Angolan Kwanza/US dollars Source: Bloomberg Since September 2013, the exchange rate has shown signs of weakening against the US dollar. More recently, in 2014, the Kwanza depreciated to over 100 kwanzas per US dollar. Since 2011, the kwanza had stayed at the same value against the dollar. The turning point occurred in the third quarter of last year, as a result of the implementation of the third phase of the new Oil Sector Exchange Rate Scheme, at 1 July 2014, with the new exchange rate behaviour coinciding with the entry into force of the guidelines of the new legislation and, more recently, with the major drop in oil prices. In January 2015, the Economist Intelligence Unit (EIU) predicted that the Angolan currency would continue to lose value against the dollar, not only because of the current account trend (which is expected to move into deficit from 2015), but also because of the end of the United States Federal Reserve's economic stimulus, which will strengthen the dollar. Since September 2013 the exchange rate has shown signs of weakening against the US dollar. The turning point occurred in the third quarter of last year, as a result of the implementation of the third phase of the new Oil Sector Exchange Rate Scheme, at 1 July 2014 and, more recently, with the major drop in oil prices. 76 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

77 Macroeconomic Environment Trade Balance According to data from the ITC (International Trade Centre), in 2013, 45% of Angolan exports were mainly destined for China. After China, the US has a share of 12.6%, India 9.6%, Taiwan 5.5% and Portugal with 4.9%. These five destinations are Angola's main customers, with 77.6% of Angolan exports. For imports, 18.7% come from Portugal. China follows (17.9%), then the United States (6.6%), Brazil (5.8%) and South Korea (5.6%). The top five countries represented about 55% of total imports in Imports, exports and trade balance, (figures in percentages) 73% 71% 67% 50,6% 46,8% 49,0% 48,9% 40,8% 33,9% 18,1% Exports Balance of trade 22,7% 16,7% 20,2% 24% 22,1% Imports Source: World Trade Organization Regarding 18.7% of the exports come from Portugal. Angola's imports amounted to an approximate annual total of 22.1 billion dollars in The composition of imports shows Angola's dependence on industrialized countries as a result of its still weak industrial base. In recent years, the Angolan trade balance has recorded a considerable increase in the value of its exports, despite a slight decrease in Between 2010 and 2012, the increase in global oil prices resulted in an increase in Angolan exports, leading to a total of 73 billion dollars in Angola's current dependence on imports of strategic and consumer goods especially food means that any substantial increase in the international prices of such goods results in a rapid rise in inflation and a drop in consumption (with major impacts on the most needy population). Under the National Development Plan, Angola aims to achieve average annual growth in non-oil exports of 23% between 2013 and It is noteworthy that, as part of the intention to reduce imports and the attempt to encourage the development of non-oil sectors, changes have been made in the Customs Tariff. The new arrangements, in place since the beginning of 2014, could lead to the replacement of some exports to the Angolan market by an increase in foreign direct investment. In terms of oil exports, China is currently the biggest importer and takes more than half of Angolan oil exports. India is in second place with 10% of exports, followed by the United States with 7%. Regarding the average annual volume of oil exports, it is expected that this will reach about 670 million barrels by ARSEG PwC 77

78 Macroeconomic Environment Real Economy Real Economy (percentage change) (figures in percentages) ,1-5, ,6 2,8 2,6 3,2 4,5 10,8 9,5 7,6 7,3 7,3 7,3 8,0 8,2 8,3 5,5-1,1-3,0-3,5-5, Forecast Projection Non-oil sector Oil sector Real GDP Source: BP Statistical Review of World Energy 2013 There is intention to increase investment in health care and sanitary, to invest in improving the quality of services, expand the health care network, develop the pharmaceutical sector, improve the management and development of supply and logistics, and to develop information systems and scientific research. Several medium and long term objectives have been established to meet existing needs and define strategic guidelines for the country. To this end, the National Development Plan , the Priority National Structural Projects Plan and the "Angola Strategy 2025" economic development model were established mainly to support the growth of non-oil sectors. As a result of the war that afflicted the country, most of the infrastructure were damaged. The transport and logistics sector is a major challenge for the country, with road and rail links presenting the greatest obstacles, as they affect both internal circulation and access to neighbouring markets. In order to address the challenges facing the sector, a recovery programme for secondary roads has been outlined, together with a programme for recovery and conservation of tertiary roads, with expected investment in excess of $ 400 million. In this context, it is expected that investments in infrastructure will remain substantial, which will mean numerous direct and indirect business opportunities. In order to improve the population's quality of life, there is an intention to increase investment in health care and hospital care, to invest in improving the quality of services, expand the sanitary network, develop the pharmaceutical sector, improve the management and development of supply and logistics, develop information systems and scientific research. 78 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

79 Macroeconomic Environment According to the "Doing Business Report" published by the World Bank in 2014, Angola is still in 181st position, out of 189 countries. With regard to the Global Competitiveness Index ( ), Angola is 140th out of 144 countries, which shows that there is a still a long way to go. However, Angola was the second African country, after South Africa, in attracting the largest number of investment projects. The main investment drivers are oil and other natural resources, with 80% of investment targeting the oil industry. However, the financial industry attracted the largest number of projects (42.5%). Public investments financed with domestic resources from tax revenues recorded growth of 20% in 2013, compared to 15% in This positive development is largely explained by greater investment in hydropower projects, telecommunications and agriculture. Angola was the second African country, after South Africa, in attracting the largest number of investment projects. ARSEG PwC 79

80 Macroeconomic Environment Brief description of the automotive sector According to Business Monitor International, up until 1980 Angola had reasonable capacity in car manufacturing. The industry suffered a collapse at the start of the 1990s, operating at only 20% of installed capacity. Despite the significant improvement in the country's business, its trade balance remains negative, which has led to Angola once again becoming a motor vehicle importing country. Exports have been declining over the years in favour of an increase in car imports. According to Wesgro, Nigeria and the Congo are the countries that import most cars from Angola, with China and Portugal exporting the most cars to Angola. Since 2003, Angola has been developing major projects in the automotive sector, in partnership with countries such as Germany, China, Japan and Portugal. The success of the road and transport infrastructure improvement programme has also contributed to a significant increase in the number of vehicles on Angola's roads. According to the latest data from ACETRO 2, total vehicles sold in Angola rose 8.9% from 2012 to 2013, to a total of 32,622 vehicles. Light vehicles (passenger and commercial) are still the best sellers in Angola (75% of the total in 2013). There has been recent growth in sales of commercial light vehicles, accounting for 5% of the total in Total vehicles sold per year (absolute value) and market share by category, (figures in percentages) 17,691 69% ,451 72% Total dealers and market share of the top five dealers There were 24 dealers in Angola in 2013, with the top five still representing a high percentage of the total market (about 56%), despite some reduction in market share that has been evident since 2010, when this share was about 67%. 29,945 69% 8,9% % 5% 2% 6% 5% 2% 2% 5% 5% 25% 24% 24% 21% Light passenger Light goods Heavy passenger Heavy goods Total dealers Top 5 (%) 66,79% 63,01% 59,08% 56,14% Source: ACETRO The total number of vehicles sold in Angola rose 8.9% between 2012 and Light vehicles (passenger and goods) are still the best sellers in Angola (75% of the total in 2013). 2 ACETRO Association of Road Transport Equipment Dealers According to ACETRO, in 2013, there were "400 to 500 thousand cars" in Angola, for a population (also estimated) of 21 million inhabitants, which show the "potential growth" of the automotive sector. On the other hand, it is estimated that Angola imported about 90,000 cars in 2013, of which about 20% were used. According to figures released by the department of statistics and studies and analyses of the National Directorate of Road Traffic, State agencies were among the largest veicules importers recorded in Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

81 Macroeconomic Environment Brief description of the industrial sector Industrial production index year-on-year change, (figures in percentages) Angola is currently witnessing growth in other industrial areas through the channelling of funds from the Angolan mining industry that may result in the proliferation of new jobs, the creation of new business clusters and in an even greater socio-economic sustainability. 1,1% 6,3% 6,0% 7,0% 8,8% 1,7% 3,1% 3,4% 2,3% According to the Angolan Ministry, manufacturing industry has been one of the fastest growing areas in recent years, accounting for approximately 6.25% of GDP. The food, beverages, clothing, footwear, construction materials, metallic and non-metallic materials, recycling and transportation equipment industries, are priorities under the Industrialization Programme, which is part of Angola's National Development Plan. -7,4% Jan-11-9,0% Mar-11 Jul-11 Source: Trading Economics Dez-11 Jan-12 Mar-12 Jul-12 Dez-12 Jan-13 Mar-13 Jul-13 2,2% Dez-13 The economic diversification of Angola is a strategic matter of critical importance for the resilience of the entire economic and business fabric. It is therefore vital to create an economic decentralization that enhances the development of new industries. Industrial production index (IPI), quarter 4, 2012 and 2013 (figures in percentages) 597% 602% 350% 352% The economic diversification of Angola is a strategic matter that has critical importance for the resilience of the entire economic and business fabric. 198% 188% 188% 188% 183% 194% Energy products Mining quarter quarter Source: AICEP BIC IPI Bank datasheet Total industry 224% 232% Intermediate goods 262% 268% Manufacturing Consumer goods Prod. and distr. electricity, gas and water Industrial activity, measured by the Industrial Production Index (IPI) of the National Statistics Institute of Angola, fell by 2.2% in the final quarter of 2013, compared to the same period last year. When analysing by sub-sector, intermediate consumer goods grew 3.3% over the same quarter of 2012, while manufacturing grew 4%. The negative value of the overall change in this index was influenced by the 2.9% reduction year-on-year in the mining industry. ARSEG PwC 81

82 Macroeconomic Environment Brief description of the construction, infrastructure and logistics sector According to the Angola Country Report of the African Development Bank, Angola, as a post-conflict country that is rich in resources, has shown an exceptionally strong commitment to financing the reconstruction and expansion of its infrastructures that were severely damaged and neglected during its long civil war. Although the reconstruction needs of Angola's infrastructure are considerable, in absolute terms, they appear manageable, given the size of the rapidly growing economy of the country. Moreover, Angola has demonstrated considerable commitment to channelling significant amounts of oil revenues to infrastructure development. For transport infrastructure, the services provided are still somewhat limited as are private transport services (such as taxis). Although there have been considerable improvements in recent years, most of vehicles operating in Angola are still in very poor condition. This sector has had some prominence in Angola, given the exponential increase in road and rail infrastructure. Angola now has more than 62,560 kilometres of road and major developments are also expected in this area. Main infrastructure projects ongoing or planned in Angola (non-exhaustive) Cabinda Zaire Bengo Luanda Benguela Uige Kwanza Norte Kwanza Sul Huambo Malange Bié Projects in Angola by category and region Airports Ports Railways Highways and Bridges Power Plants Cement plants and refineries Oil, Natural Gas and Others Housing and Industrial Units Lunda Norte Lunda Sul Moxico Huila Namibe Cunene Cuando Cubango Source: PND Angola, BMI, PwC Analysis 82 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

83 Macroeconomic Environment Construction is one of the most promising sectors in Angola in terms of evolution and it is fundamental in the regeneration of local and national economies. Construction is one of the most promising sectors in Angola in terms of evolution and it is fundamental in the regeneration of local and national economies. It is a sector that has been recording high growth in Angola and has already made a noteworthy contribution to the country's GDP. Despite the major presence of Chinese and Brazilian companies, there are also many Portuguese construction companies operating in this sector, which remains very attractive. With regard to civil construction and public works, this sector has continued to grow for more than five years, with the most notable change being in the public works, infrastructure and private works sectors. In addition to basic infrastructure, streets and sanitation in the centre of Luanda, new estates have been built on the outskirts and old neighbourhoods, such as Luanda Sul, Morro Bento, Viana, Benfica, have been modernized along with office buildings and hotels, among others. The country's electricity distribution infrastructure is still somewhat limited, with only 26% of the population having access to electricity, a value below the average of countries in sub-saharan Africa (about 31%). According to the Angola Infrastructure Report, for the 3rd quarter 2014, issued by Business Monitor International, there are several projects under way to extend the Angolan power grid which in the long term, will end up with the current gaps. Despite the infrastructure network in Angola still being somewhat basic, Luanda already stands out as the province with the most investment in infrastructure, with about 26% of all investment channelled into this sector, equivalent to about 1,580 billion kwanzas and 126 planned projects. ARSEG PwC 83

84 Macroeconomic Environment Brief description of the health sector Angola has implemented several programmes for the development of its health care section through training of existing staff to enhancing their critical technical capabilities so that they can offer diversified high quality services. Some of these proposals point to greater international cooperation between Portugal and Angola, for example internships in healthcare facilities in Lisbon for Angolan health workers. According to the World Health Organization, average life expectancy at birth in Angola is 49.2 years, the mortality rate is 610 per 100,000 live births and the infant mortality rate is 116 per 1,000 live births. The most recent interventions in health care have direct support for the provision of basic services, focusing primarily in difficult to access areas where the continued provision of essential resources such as drugs and vaccines has been established. Support for vulnerable groups (especially the disabled), training of unqualified personnel, the construction and rehabilitation of health posts and centres (with priority for municipal centres and rural areas) and support for institutional reforms in five key areas: the medium-term strategy, medicines regulation, safety policy in health, planning and budgetary capacity and sector financing policy, are the themes that have been in focus. Health spending in Angola, per person (figures in US dollars) +32% 176,72$ 174,33$ 177,60$ 190,46$ 143,78$ 110,86$ 115,46$ 63,39$ 70,96$ 33,48$ 44,62$ Source: World Bank 84 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

85 Macroeconomic Environment The main challenges that the health sector is currently facing relate to greater availability of skilled human resources for health care, the development of the integrated health information system for monitoring and evaluation of plans in specific programmes and projects, effective and sustainable control of contagious diseases such as HIV/AIDS, Tuberculosis and Malaria and Neglected Tropical Diseases, through universal access to routine immunization, preparation and response to epidemics and reinforcement of health promotion and improvement of the environment. Angola has implemented several health development programmes, enhancing the technical capabilities of its existing resources. ARSEG PwC 85

86 Insurance and Pension Funds Market 7 Global During the three year period under review, global output grew by 2%. There was a more significant change in emerging markets, Africa and South America/Caribbean, with growth of about 5% and 18%, respectively. At first glance, the values broken down in the following charts seem to suggest that two large groups can be distinguished, based on their volume of premiums. A first group, with output of over 1,000 billion US dollars, consisting of Europe, North America and Asia, and a second, below that amount, formed by Africa, South America/Caribbean and Oceania. During the three year period under review, global output grew by 2%. We experienced a more significant change in emerging markets, Africa and South America/ Caribbean, with growth of about 5% and 18%, respectively. With the exception of Oceania, whose land mass is much smaller than the others in the group, the separation between groups of countries appears intrinsically linked with the level of development of their societies. Economic development, wealth creation, the degree of wealth concentration, population density and characteristics (e.g. education level), are just some of the aspects that also define a pattern of values associated with the protection of both goods and people and also saving. Thus, together with greater economic maturity, wealth permeating the different layers of society and higher education levels, we see higher volumes of premiums in the countries of Europe and North America. 86 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

87 Global production and % of market share by continent (figures in US dollar billions) -5% +6% +4% -4% +4% -1% % 35% 28% North America Europe Asia +9% +9% % +1% % +3% % 2% 2% South America/Caribbean Africa Note: % world market share in 2013 Africa Oceania Source: Swiss Re, Sigma 3 ARSEG PwC 87

88 Insurance and Pension Funds Market Breaking down global production by type of business, between Life and Non-Life, Life insurance has a higher proportion (56%) than Non- Life insurance (44%), a trend that remained similar during Throughout this period, the Life business remained practically constant, while Non-Life increased by about 4%. Global production life and non-life by continent (figures in US dollar billions) % +4% % -6% % +11% +7% +11% North America South America/Caribbean -4% -6% +4% +7% % +4% 0% +2% Europe Africa +3% +5% +2% -7% % -3% +2% +4% Asia Oceania Life Non-life Source: Swiss Re, Sigma 3 88 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

89 Insurance and Pension Funds Market Distribution of premiums by continent, 2013 (figures in percentages) 36% 34% 19% 39% Europe Asia 34% 22% North America 1% Africa 2% 5% South America/Caribbean 3% 2% Oceania 2% Distribution of premiums - Life Distribution of premiums - Non-life Source: Swiss Re, Sigma 3 The Life business remained practically constant, while Non- Life business increased by about 4%. ARSEG PwC 89

90 Insurance and Pension Funds Market The penetration index shows similar behaviour to that recorded by premiums income. In a first group, the countries of Europe and North America record the higher rates of use the generated wealth to buy insurance premiums, above 6%. For the second group, the countries of Asia and Oceania, the rate is about 5% while in the third group, African, South America and Caribbean countries, the rate is around 3%. Density index and penetration index (figures in US dollars and percentage of GDP, respectively) +5% -1% % +6% +3% -6% ,4% 6,8% 5,4% North America Europe Asia +8% +7% % -1% % -9% ,2% 3,5% 5,2% South America/Caribbean Africa Oceania Penetration index, 2013 Density index Source: Swiss Re, Sigma 3 90 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

91 Insurance and Pension Funds Market Africa The figures for the African continent are largely influenced by the contribution of South Africa. Given its characteristics and level of development, it makes a decisive contribution to total production and to the proportion of the Life business. Excluding South Africa, the other African countries under review have lower indicators. The characteristics of most of these countries constrain the insurance sector in occupying a stronger position. These countries are characterised by lower premium income values, preponderance of Non-Life products, associated mainly with mandatory insurance and low levels of saving, low density and penetration ratios, resulting from a limited insurance culture and lack of available income. Breakdown of Life and Non-life premiums in Africa (figures in US dollar millions) Non-Life South Africa Morocco Nigeria Algeria Angola Egypt Kenya Tunisia Namibia Mauritius Other countries Total Life Source: Swiss Re ARSEG PwC 91

92 Insurance and Pension Funds Market Density index Africa breakdown (Total premiums/resident population, in US dollars) The figures for the African continent are largely influenced by the contribution of South Africa. South Africa Mauritius Namibia 97 Morocco 77 Tunisia 55 Angola 39 Algeria 35 Kenya 23 Egypt 11 Nigeria 67 Total South Africa Mauritius Namibia Morocco Tunisia Angola Algeria Kenya Egypt Nigeria Total Life Non-Life Source: Swiss Re 92 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

93 Insurance and Pension Funds Market Penetration index Africa breakdown (Total premiums/gdp in percentage) ,4% 7,7% 5,8% 3,4% 3,0% 1,8% 3,5% 0,8% 0,8% 0,8% 0,6% South Africa Namibia Mauritius Kenya Morocco Tunisia Angola Algeria Egypt Nigeria Total ,2% 8,0% 5,9% 3,1% 3,0% 3,7% 1,8% 1,0% 0,7% 0,7% 0,7% South Africa Namibia Mauritius Kenya Morocco Tunisia Angola Egypt Nigeria Algeria Total Life Non-Life Source: Swiss Re ARSEG PwC 93

94 Insurance and Pension Funds Market Angola Introduction This chapter includes a quantitative approach, based on an analysis derived from the compilation of financial information, made available by ARSEG, on insurance companies, pension fund management companies and pension funds operating in Angola. Overall, the analysis period addressed in this study covers the years 2011, 2012 and Where the analysis refers to a different period, it will be identified. Moreover, financial information for the entities in question was disclosed on an individual and consolidated basis. The presentation of the quantitative analysis involves an aggregation and presentation of the financial information available, with considerations formulated based on the factual reality it reflects. The financial information used and presented included data presented in the Annual Reports of organisations complying with the postulated in the Article 2, Chapter II of Circular No. 02 / ISS/MF/10 and Circular No. 03/ISS/ MF/10 on the Mandatory and Regular Information of Insurance Companies and Pension Funds Insurance Companies 1. ENSA Seguros 2. AAA Seguros 3. Nossa Seguros 4. GA Angola Seguros 5. A Mundial Seguros 6. Global Seguros 7. Garantia Seguros 8. Confiança Seguros 9. Tranquilidade 10. Triunfal seguros 2012 Insurance Companies 1. ENSA Seguros 2. AAA Seguros 3. Nossa Seguros 4. GA Angola Seguros 5. A Mundial Seguros 6. Global seguros 7. Garantia Seguros 8. Confiança Seguros 9. Universal Seguros 10. Tranquilidade 11. Triunfal Seguros Pension Fund Management Companies 1. Gestão de Fundos 2. AAA Pensões 3. Fénix 4. Besaactif Pension Fund Management Companies 1. Gestão de Fundos 2. AAA Pensões 3. Fénix 4. Besaactif Pension Funds 1. Fundo de Pensões BPC 2. Maersk Oil Angola, AS 3. Fina Petróleos de Angola 4. Caixa de Previdência e Aposentação dos Trabalhadores das Alfandegas 5. Fundo Empresas AAA 6. Unitel 7. Trabalhadores ISS 8. Banco Sol 9. ENE 10. Ministério dos Petróleos 11. Schlumberger Technical Services, Inc 12. Futuro Seguro 13. BP (Angola) 14. Ensa Seguros Angola 15. Catoca 16. Multiplanos 17. Futuro 18. Life Tranquila 19. Tecproeng 20. Statoil Angola Block 17 AS 21. Sonamet 22. Sonangol EP Pension Funds 1. Fundo de Pensões BPC 2. Maersk Oil Angola, AS 3. Fina Petróleos de Angola 4. Caixa de Previdência e Aposentação dos Trabalhadores das Alfandegas 5. BAI Banco Africano de Investimentos 6. Fundo Empresas AAA 7. Unitel 8. Longa Life 9. Sonils 10. Trabalhadores ISS 11. Banco Sol 12. ENE 13. Ministério dos Petróleos 14. Schlumberger Technical Services, Inc 15. Futuro Seguro 16. BP (Angola) 17. Ensa Seguros Angola 18. Catoca 19. Multiplanos 20. Futuro 21. Porto de Luanda 22. Por Dia 23. Tecproeng 24. Statoil Angola Block 17 AS 25. Sonamet 26. Sonangol EP 27. BESA Opções Reforma 94 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

95 Insurance and Pension Funds Market 2011 Insurance Companies Pension Fund Management Companies Pension Funds The financial information used and presented included Insurance and Pension Fund Management Companies operating in Angola. 1. ENSA Seguros 2. AAA Seguros 3. Nossa Seguros 4. GA Angola Seguros 5. A Mundial Seguros 6. Global Seguros 7. Garantia Seguros 8. Universal Seguros 9. Tranquilidade 1. Gestão de Fundos 2. AAA Pensões 3. Fénix 4. Besaactif 1. Fundo de Pensões BPC 2. Maersk Oil Angola, AS 3. Fina Petróleos de Angola 4. Caixa de Previdência e Aposentação dos Trabalhadores das Alfandegas 5. BAI Banco Africano de Investimentos 6. Fundo Empresas AAA 7. Unitel 8. Longa Life 9. Sonils 10. Trabalhadores ISS 11. Banco Sol 12. ENE 13. Ministério dos Petróleos 14. Futuro Seguro 15. BP (Angola) 16. Ensa Seguros Angola 17. Catoca 18. Multiplanos 19. Futuro 20. Porto de Luanda 21. Por Dia 22. Tecproeng 23. Statoil Angola Block 17 AS 24. Sonamet 25. Sonangol EP 26. BESA Opções Reforma ARSEG PwC 95

96 Insurance and Pension Funds Market Insurance Sector in Angola 1. Structure of the insurance and intermediary/ brokerage sectors Since the liberalization of the insurance market, the sector has been witnessing sustained growth. The financial year 2013 closed with 15 insurance companies operating and two in the process of acquiring licences (established in 2014). The economic and social context in which this industry operates, partly as result of the development of the financial sector itself, has attracted the attention of several investors, resulting in a growing number of entities at the level of all operators. The low penetration index (contribution to the country's wealth), the inadequate insurance and savings culture in the population, the emergence of a more financially capable middle class, the development of banking, the low rates of expansion to the various provinces of Angola, the profitability of operations are just some of the factors that have led to increased investment in this industry. Since the liberalization of the insurance market, the sector has been witnessing sustained growth. Insurance Companies Public Capital Private Capital Total Insurers Insurance intermediaries by category Individual intermediaries Agents Total Intermediary Companies Direct Insurance Agents Direct Insurance Brokers Direct Insurance and Reinsurance Brokers Total Total insurance intermediaries Source: ARSEG 96 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

97 Insurance and Pension Funds Market Evolution of the number of entities, (award of licence) 2000 ENSA 2001 AAA G.A. Angola Nossa 2006 Mundial Global Garantia Universal Confiança 2011 Triunfal 2012 Protteja Mandume Tranquilidade Super BIC Prudencial Bonws Insurance Companies Pe&Se Almeida & Associados 2008 Imbo 2009 Corretana 2010 Fides 2011 Cosea Crucial 2012 Kyeleka Seguro Único Transeguros Inter Risk Media Primum Vivere 2013 EXU 2014 Grand Company intermediaries Direct insurance agent Source: ARSEG ARSEG PwC 97

98 Insurance and Pension Funds Market Evolution of the number of entities, (award of licence) 2000 Peritana Gestiseguro National Brokers Idealseguros Interseguros Inter Broker RI&A 2012 Risk Tech AFRI Direct Insurance Brokers Aon Angorisk GSSA Porto Real Moseg Avangard ISEM Seguro Risk Direct Insurance and Reinsurance Brokers Source: ARSEG 98 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

99 Insurance and Pension Funds Market In terms of mediation and brokerage, are registered 329 individual agents, 14 agents in the form of legal entities and 19 brokers. Insurance intermediaries (Individuals), ,70% ,45% Source: ARSEG Geographical distribution of the insurance branch network, 2013 Cabinda 3 (4%) Zaire 2 (3%) Uige 2 (3%) Bengo 3 (4%) Kwanza Lunda Norte Norte 1 (1%) 1 (1%) Luanda 26(39%) Malange 3 (4%) Lunda Sul 2 (3%) Kwanza Sul 2 (3%) The network of insurance agencies is becoming more widely dispersed throughout the country. The need to reach the different provinces of the country is a priority for most insurers. Of course, there is a higher concentration of branches in Luanda and Benguela, but the number of agencies in the other provinces is gradually increasing. The process of setting up branches suffers from certain limitations because several provinces are at a low level of development compared to provinces with more dynamic cities. This low rate of development, together with the difficulty experienced by some demographic groups in accessing insurance products, for financial reasons or due to lack of knowledge, difficult the deployment process. Benguela 8 (12%) Huambo 5 (7%) Bié 1 (1%) Moxico 1 (1%) However, the development perspective is strong. The operators are very much aware of the need to expand, society demands it. Huila 3 (4%) Namibe 2 (3%) Cunene 1 (1%) Cuando Cubango 1 (1%) Source: Information collected from internet websites of various insurance companies and 2013 and 2012 financial statements ARSEG PwC 99

100 Insurance and Pension Funds Market Productivity Angola/Portugal ratio - direct insurance production/ average number of workers in the sector in , ,88 97,6 69,72 A Direct insurance production (Kwanza billions) 1400** B Average number of employees in the insurance sector (units) C Ratio (A)/ (B) (Kwanza millions) The network of insurance agencies is becoming more widely dispersed throughout the country. There is a higher concentration of branches in Luanda and Benguela, but the operators are very much aware of the need to expand, society demands it. Angola Portugal Source: ISP Report of the Insurance and Pension Funds Sector 2013 ** Estimate based on financial statements 2013 and information collected during individual interviews with representatives of insurance companies (estimate). With the changes that are taking place in the insurance business, the number of employees in the sector is growing. Technical skills are urgently needed to respond to the specifics of the business and to monitor its development. It is therefore expected that the number of employees will continue to grow. By comparison with the more mature markets, a convergence is expected to their levels. 100 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

101 Insurance and Pension Funds Market With the changes that are taking place in insurance business, the number of employees in the sector is growing. Profit and Loss accounts, figures in Kwanza Insurance premium revenue Insurance Claims Technical provisions variation Gross operating income ( ) Expenses with the acquisition of insurance contracts Structural costs Operating income (4+5+6) Reinsurance premiums Reinsurance commissions Reinsurance claims Technical reinsurance provisions variation Reinsurance Result ( ) Operating income net of reinsurance (7+12) Non-technical provisions variation Financial result Other gains/losses Profit before tax ( ) Income tax expense Net Profit for the Year (17+18) Source: Financial statements of insurance companies, provided by ARSEG, PwC analysis. ARSEG PwC 101

102 Insurance and Pension Funds Market In the period under review, the sector assisted to continued growth in net income, with a variation of about 50% between 2011 and Despite this variation, the performance was not consistent across the different types of results. The graph shows the trend of the various results for the sector. Trajectory of the sector's results and evolution of gross premiums issued, AAGR* +6,3% ,0% 75,3% 66,7% % 38,2 51,7% 52,5% In the period under review, the sector assisted to continued growth of about 50% in net income. 41,8% 5,8% 2,2% 13,6% 2,8% 6,3% 2,7% Gross premiums issued (Kwanza) Net reinsurance underwriting result Gross underwriting result Pre-tax result Underwriting result *AAGR - Average Annual Growth Rate The gross operating income for the three years grew about 5%. However, the growth was not linear, i.e., there was growth from 2011 to 2012 (6%), but there was a slight decrease from 2012 to 2013 (-1%). The volume of premiums issued has grown at a good pace, partly as a result of the contribution of mandatory motor insurance and due to the development of the accidents and disease line of businesses. However, claims levels accelerated sharply, with an increase of about 27% in this period (despite the reduction in the claims in 2012, 2013 was a punishing year, especially in the petrochemical industry). Net income for the year, ,2% +29,6% ,6% Source: ARSEG 102 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

103 Insurance and Pension Funds Market The gross operating income for the three years grew about 5%. The volume of premiums issued has grown at a good pace, partly as a result of the contribution of mandatory motor insurance and due to the development of the accidents and disease line of businesses. Analysis of the change in the operating income, which includes brokerage commissions and structural business costs, shows different global behaviour than the gross underwriting result, i.e., over the 3-year period under review, there was a negative variation. Despite the positive trend in 2012, the indicator fell sharply in Structural costs showed 2-year growth of about 40% (particularly in staff and administrative costs). The operating income net of reinsurance followed a similar trend to the gross operating income. The reinsurance result of the sector grew in 2012 mainly due to lower ceding rates, but remained at the same level in There was continuous growth in the profit before tax over the three years. The lower increase in non-technical provisions, recorded in 2013, enabled a lower operating income net of reinsurance to be offset. Over the period under review, the effective tax rate was slightly higher than the nominal tax rate of 35%. It is important to highlight the important role that this sector plays in society, with regard to the tax revenue paid to the State. Effective tax rate (figures in Kwanza) Income Tax for the Financial Year Profit before tax Effective tax rate 39% 38% 39% Source: Financial statements of insurance companies, provided by ARSEG. ARSEG PwC 103

104 Insurance and Pension Funds Market Ranking of the top 10 insurers in the Angolan market (Kwanza) Net Income for the Year, ENSA Seguros GA Angola Seguros Nossa Seguros Global Seguros A Mundial Seguros AAA Seguros Triunfal Seguros Tranquilidade Garantia Seguros Confiança Seguros Total of the top 10 insurers Source: Financial statements of insurance companies, provided by ARSEG 104 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

105 Insurance and Pension Funds Market Direct insurance written premiums by LOB (figures in Kwanza) Lines of business Life % % % Non-Life % % % Accidents, Disease and Travel % % % Fire and Natural Causes % % % Other Damage to Property % % % Motor % % % Transport % % % Petrochemical % % % Civil Liability (General) % % % Miscellaneous % % % Total written premiums Source: Financial statements of insurance companies, provided by ARSEG % 3% 2% 96% 97% 98% Life Non-Life Source: Financial statements of insurance companies, provided by ARSEG. ARSEG PwC 105

106 Insurance and Pension Funds Market Proportion of Non-life business, (percentage of total Non-life business) % 15% 6% 8% 16% 4% 4% 7% 2% 33% 32% 15% 34% 7% 5% 24% 8% 24% 9% 4% 3% 22% 4% 11% Accident Illness, and Travel Transport Motor Miscellaneous Other Damage Civil Liability General Petrochemical Fire and Natural Elements Source: Financial statements of insurance companies, provided by ARSEG Total gross written premiums recorded, in the period under review, an increase of about 13%. With greater emphasis on 2012 to 2013 (about 11%) the trend has remained upward. In parallel with a changing economic and social context, this sector has also shown strong development. As in most African countries, excluding South Africa, there is a clear predominance of the Non-Life business over the Life business. In 2013 around 98% of output was in the Non-Life business. The Life business and the several Non-Life businesses maintained their relative proportions through these three years. Ultimately, it is the economic and social context of these countries that dictates the structure of the insurance portfolio. About 70% of total output is concentrated in three Non-Life insurance lines of business (LOB): 33% in Accidents, Disease and Travel, 24% in Motor and 15% in Petrochemicals. The first two products reflect the mandatory nature of Workmen s Compensation Insurance and mandatory Motor Insurance, while the third is linked to the most important economic sector in the Angolan economy. 98% In 2013 around 98% of written premiums were related to the Non-Life business. 106 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

107 Insurance and Pension Funds Market In terms of growth and weight in the overall portfolio, the Motor and Accident, Disease and Travel lines of business have experienced the highest levels of development. The first has been driven by numerous campaigns to boost this type of insurance, while the latter has been influenced by health insurance, which is experiencing growing demand. The Life business has had residual importance in the market, but it is expected that this trend will reverse and it will once again be prioritized. Factors such as the revision of the tax system, the development of the capital market, more widespread bank credit, greater social awareness of the need to save and of the role of the insurance, the development of the bancassurance, among other aspects, are elements that may be critical to the growth of this industry. Ranking of the top 10 insurers in the Angolan market (Kwanza) Gross Premiums Issued, ENSA Seguros AAA Seguros GA Angola Seguros Global Seguros Nossa Seguros A Mundial Seguros Garantia Seguros Tranquilidade Triunfal Seguros Confiança Seguros Total of the top 10 insurers Source: ARSEG The Life business has had residual importance in the market, but it is expected that this trend will reverse and it will once again be prioritized. ARSEG PwC 107

108 Insurance and Pension Funds Market Uncollected Premiums Given their weight on insurer balance sheets, uncollected premiums should be highlighted. In the three years under review the percentage of uncollected premiums was between 71% in 2011 and 54% in Despite the decrease, uncollected premiums still represent a very significant portion of written premiums. This is a sensitive subject which reflects the difficulty that insurers have in converting their insurance policies into cash. The table below shows the amount of provisions for uncollected premiums. The significant weight of uncollected premiums and the provisions made for them, results essentially from: (i) financial difficulties experienced by policyholders and (ii) operational problems in premium collection processes Uncollected Premiums Gross written premiums Uncollected Premiums (%) 54% 57% 71% Source: Financial statements of insurance companies, provided by ARSEG. Provision for uncollected premiums The provisioning level is a very significant portion of the total uncollected premiums. As mentioned above, this is a pressing concern of the sector which needs to be addressed either by customer selection, or by identifying/introducing mechanisms that streamline premium collection. The provisioning level is a very significant portion of the total uncollected premiums Provision for uncollected premiums Uncollected Premiums Provisioning rate (%) 63% 51% 25% Source: Financial statements of insurance companies, provided by ARSEG 108 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

109 Insurance and Pension Funds Market Claims Direct insurance Claims Breakdown of claims by LOB (figures in Kwanza) Business Life % % % Non-Life % % % Accidents, Disease and Travel % % % Fire and Natural Causes % % % Other Damage to Property % % % Motor % % % Transport % % % Petrochemical % % % Civil Liability (General) % % % Miscellaneous % % % General Accounts % % % Total claims Source: Financial statements of insurance companies, provided by ARSEG. Given the development taking place in the sector, claims paid have, obviously, also increased. In the three years under review, total claims grew by about 27%, most notably in the last year. It is interesting to note that the significant growth in the written premiums, around 13%, was still much lower than the growth in claims, which is reflected in a deterioration of sector's income and profitability. However, the claims ratio is still rather low, especially compared to other countries with much more mature sectors. The highest concentration of claims reflects the above-mentioned structure of the portfolio: Accidents, Disease, and Travel (2013: about 60%), Motor (2013: about 20%) and Petrochemical (2013: about 10 %). The evolution of claims in this last LOB was volatile and was mostly influenced by a single operator. One significant adjustment release of provisions for outstanding claims was recorded in 2012, resulting from a significant reduction in the business of this particular LOB. ARSEG PwC 109

110 Insurance and Pension Funds Market Claims Despite the stronger global growth in the amount of claims, the overall claim ratio only grew 3% between 2011 and 2013 as a result of their dilution in the volume of written premiums over this period. The global claim ratio in 2013 was 30%, with unstable behaviour over the three years, including a reduction in 2012, as a result of the above-mentioned developments in the Petrochemical sector. Noteworthy is the performance of the LOB Accidents, Disease and Travel, whose level of claims is much higher than the others, highlighting an issue that crosses the sector, referring to the low profitability of the LOBs Workmen Compensation and Health. The overall claim ratio only grew 3% between 2011 and 2013 as a result of their dilution in the volume of written premiums over this period. Claims ratio Non-Life sector, by sub-products (Portugal vs Angola) Portugal 112% 105% 79% 79% 69% 65% 50% 66% 41% 23% Worker's compensation Illness Motor Fire and other damage to property General Civil Liability Angola 48% 67% 58% Accidents, Illness and Travel 21% 17% 11% 9% Fire and Natural Causes Other damage to property 29% 22% 24% 18% -9% Motor -1% 35% 19% -13% -16% -23% Transport Petrochemical 0% -2% 3% General Civil Liability 2% 0% 0% Miscellaneous Source: Financial statements of insurance companies, provided by ARSEG 110 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

111 Insurance and Pension Funds Market The trend is towards a convergence of claim ratios to levels closer to those recorded in more mature markets. As a stronger insurance culture takes root in society with greater distribution of the retail networks of the different operators throughout the country, a gradual alignment is expected. Ranking of the top 10 insurers in the Motor Insurance Market (Kwanza) Compensations, ENSA Seguros GA Angola Seguros AAA Seguros A Mundial Seguros Global Seguros Nossa Seguros Tranquilidade Garantia Seguros Confiança Seguros Triunfal Seguros Total of the top 10 insurers Source: Financial statements of insurance companies, provided by ARSEG ARSEG PwC 111

112 Insurance and Pension Funds Market Intermediaries commissions The commissioning levels remained stable over the 3 year period. There was an evolution in the intermediary commissions proportional to the written premiums performance. Breaking this down into greater detail, there was, of course, a higher weight of commissions in the non- -life business, with about 90% in 2013 and over 97% in the other two years. In terms of value, the highest commissions are linked to mandatory non-life insurance motor and Workmen Compensation. Commission levels remained stable over the 3 year period under review. The highest weight of the commissions was in the non-life business, with about 90% in 2013 and over 97% in the other two years Gross written premiums Brokerage commissions Commissioning rates 3% 3% 3% Source: Financial statements of insurance companies, provided by ARSEG 112 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

113 Insurance and Pension Funds Market Direct Insurance intermediaries' fees by line of business 2% % % % % 89% Life Não-Life Non-life detail % 34% 2% 1%1% 7% 6% 1% % 35% 9% 7% 4% 3%3% 3% 2%2% % 33% 7% 6% 1% Motor Accidents, Illness and Travel Transport Other damage to property Fire and Natural Causes Miscellaneous General Civil Liability Petrochemical Source: Financial statements of insurance companies, provided by ARSEG ARSEG PwC 113

114 Insurance and Pension Funds Market Direct Insurance intermediaries' fees by line of business Fees Rate % 2% 3% 3% 1% 3% Life Non-Life Life Non-Life Life Non-Life 3% 2% 2% 4% 3% 0% 1% 1% Accidents, Illness and Travel Fire and Natural Causes Other Damage to Property Motor Transport Petrochemical General Civil Liability Miscellaneous Source: Financial statements of insurance companies, provided by ARSEG Operating Costs Gross written premiums Structural Costs Expenses ratio 22% 20% 18% Source: Financial statements of insurance companies, provided by ARSEG Associated with the development of the sector, the structures of the insurance companies are also growing, which is reflected in an increase in their costs. Structural costs grew by about 40% in the period under review. This increase did not follow the evolution of written premiums, where growth over the same period was lower, resulting in lower profitability in the sector. In terms of the expense ratio, the effect of the growth in the costs was ultimately diluted in the written premiums, resulting in a rate that rose 2% per year between This indicator has vital importance because it reflects the business effectiveness of the various insurers. The following table shows the different categories of insurance company structural costs. 114 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

115 Insurance and Pension Funds Market Structural costs, (figures in Kwanza millions and % of total) % As can be seen, about 50% of the costs relate to staff and about 40% are administrative. These two categories account for about 90% of the sector's structural costs. Between 2011 and 2013, staff costs increased by about 30%, while administrative costs grew by about 46% over the same period. 50% 50% 39% Staff Costs Administrative Costs Taxes and fees Depreciation 37% 38% 4% 5% 8% 10% 4% 8% Source: Financial statements of insurance companies, provided by ARSEG Combined ratio Combined ratio Non-life business Portugal 96% 94% 96% Angola 55% This activity indicator, which is very common in the insurance industry, shows a deterioration of business profitability. Although it remained constant in 2011 and 2012, the rate increased by 8 % in % 68% 69% 47% 47% 27% 24% 30% There will obviously be an increase in its value and a convergence over time with the situation in more mature markets. Even so, the rates presented are still relatively low, compared to the situation in more mature industries, which makes this an attractive factor for investment in this business. 27% 28% 27% 20% 23% 25% Combined ratio Claims ratio Expenses ratio Combined ratio Claims ratio Expenses ratio (includes fees rate) Source: Financial statements of insurance companies, provided by ARSEG ARSEG PwC 115

116 Insurance and Pension Funds Market Reinsurance result Reinsurance premiums Commissions and profit sharing of reinsurance results Reinsurance claims Variation in reinsurance technical provisions Reinsurance result Ceding rate of outward reinsurance premiums 45% 44% 50% Claim recovery rate of outward reinsurance 19% 11% 9% Outward reinsurance commissions rate 6% 5% 4% Rate of return on gross written premiums -35% -39% -46% Source: Financial statements of insurance companies, provided by ARSEG The performance of reinsurance operations improved over the 3-year period. The performance of reinsurance operations improved over the 3-year period. Despite the values remaining constant between 2012 and 2013, compared to 2011 the result showed a clear improvement (reduction of about 13%). The rate of return achieved by the sector in this period grew, with the negative result of reinsurance operations falling about 11% from Between 2011 and 2013 the ceding rate of outward reinsurance premiums decreased, with no significant change between 2012 and Despite this progress, the sector is still clearly conservative with regard to risk-taking, as when it is compared to other more mature markets, the rates are still higher (45% -50% between 2011 and 2013). This highlights a certain caution by operators. However, the ceding rate has been decreasing, reflecting a natural adjustment of the business as knowledge expands and insurers become more robust. There will obviously be a convergence with the situation in more mature sectors, with the ceding rate gradually decreasing. Ceding rate of outward reinsurance premiums Portugal and Angola (figures in percentage) 50% 23% 44% 45% 26% 26% A performance das operações de resseguro melhorou ao longo destes 3 anos. Regarding outward reinsurance claims, the situation was the complete opposite. That is, the rate of recovery of claims from reinsurers grew by about 10% between 2011 and Reinsurance co-payment in claims from reinsurers has increased. Regarding commissions for outward reinsurance, they remained relatively constant throughout the period Angola Portugal Source: Financial statements of insurance companies, provided by ARSEG 116 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

117 Insurance and Pension Funds Market Main balance sheet items (figures in Kwanza) Investments, bank deposits and cash Outward reinsurance technical provisions Uncollected Premiums Others Total Assets Technical provisions Non-technical provisions Others Total Liabilities Equity Total Liabilities + Equity Source: Financial statements of insurance companies, provided by ARSEG ARSEG PwC 117

118 Insurance and Pension Funds Market The net assets of the sector recorded a fall of about 10% in the 3-year period under review. Despite the growth of about 27% recorded in 2012, in 2013 there was a decrease of about 30%. This breach was essentially the result of a significant settlement adjustment carried out by one of the operators. The consolidated assets of the sector recorded an increase of about 10% between 2011 and The amount relating to investments increased by about 20%, accompanied by moderate growth in the underwriting provisions of ceded reinsurance, partly in line with the growth in direct insurance underwriting provisions. The amounts of uncollected premiums decreased (about 14%), reflecting a greater effort in the collection of written premiums, with an increase of about 40% recorded in other asset components. Liabilities recorded growth of 16% during the period under review. There was moderate growth in technical provisions, while Non-technical provisions, particularly provision for uncollected premiums, registered a sharp increase (about 108%). Ranking of insurers in the Angolan market (Kwanza) equity, ENSA Seguros AAA Seguros GA Angola Seguros GLOBAL Seguros NOSSA Seguros TRIUNFAL Seguros GARANTIA Seguros CONFIANÇA Seguros TRANQUILIDADE A MUNDIAL Seguros TOTAL Source: Financial statements of insurance companies, provided by ARSEG 118 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

119 Insurance and Pension Funds Market Solvency Sector Solvency Margin The sector is generally solvent, despite the decline in the ratio between 2012 and This is a very important indicator, not only for business activity, but also for the supervisory process itself. Angola 120% 164% The market includes some operators with considerable experience/maturity and more stable levels of solvency. However, there are also several recently established insurers, with high growth rates and, therefore, more volatile solvency levels Portugal % 233% Source: Angola Calculated by approximation based on insurance company accounts provided by ARSEG. Portugal - ISP Investments Breakdown of the investment portfolio by asset type (figures in Kwanza) Property % % % Variable income securities % % % Fixed income securities % % % Deposits in credit institutions % % % Others % % % Total investments % % % Cash and cash equivalents Investments, cash and cash equivalents Source: Financial statements of insurance companies, provided by ARSEG The sector's investments are characterized by reduced dispersion. In 2013, about 95% of total investments were in real estate and deposits with credit institutions. The absence of a developed capital market/stock exchange and the impossibility of investing abroad are limiting factors on investments. It is expected that there will be developments in this area in the near future. The sector is solvent, despite the decline in the ratio between 2012 and ARSEG PwC 119

120 Insurance and Pension Funds Market The rate of return on the existing asset portfolio is relatively low, with financial profitability at about 3% on the average investment made by insurance companies during 2013 and Financial profitability (figures in Kwanza) Financial result Investments, cash and cash equivalents Average rate of return on investments % 3% 8% Source: Financial statements of insurance companies, provided by ARSEG Over the 3 years under review the coverage rate of technical provisions exceeded 100%. Coverage of technical provisions (figures in Kwanza) Financial result Investments, Cash and cash equivalents Average rate of return on investments % 3% 8% Source: Financial statements of insurance companies, provided by ARSEG 120 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

121 Insurance and Pension Funds Market Technical provisions Distribution of technical provisions between the Life and Non-Life businesses (figures in Kwanza) Business Life % % % Non-Life % % % Total % % % Source: Financial statements of insurance companies, provided by ARSEG As has been mentioned throughout this study, the Life insurance business has limited significance in the sector. This is clearly reflected in the level of technical provisions for this LOB. Over the three years under review the share of technical provisions assigned to Non-Life LOB was over 90% of the total. Breakdown of technical provisions by type (figures in Kwanza) Mathematical provision for life insurance % % % Mathematical provision for Workmen Compensation % % % Provision for unexpired risks % % % Provision for temporary incapacity of Workmen Compensation % % % Provision for outstanding claims % % % Total % % % Source: Financial statements of insurance companies, provided by ARSEG Throughout the period provisions grew moderately (about 3%), as a result of growth in activity and, consequently, liabilities. Provisions for unexpired risks and provisions for outstanding claims represent about 80% of total provisions over this period. Premium deferral levels The deferral rate of written premiums remained fairly constant, reflecting the fact that most insurance policies are taken out in the first months of the year. Deferral rate (figures in Kwanza) Provision for unexpired risks Gross written premiums Premium deferral rate (%) 20% 19% 17% ARSEG PwC 121

122 Insurance and Pension Funds Market Coverage rate (figures in Kwanza) Provision for temporary incapacity - Workmen Compensation LOB Provision for outstanding claims Gross written premiums Coverage rate 25% 19% 32% Source: Financial statements of insurance companies, provided by ARSEG The recorded ratios accurately reflected the limited maturity of the sector. The sector's level of growth is associated with a market that is still very recent and which therefore has somewhat low rates compared to those of more mature countries. Obviously, registered coverage rates will converge towards higher levels in the future. 122 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

123 Insurance and Pension Funds Market Pension Funds The pension fund sector has also been growing steadily. This industry's economic and social environment is, to an extent, different to the situation of the insurance business. 1. Structure of the pension fund sector Structure Like the insurance sector, the pension fund sector has also been growing steadily. Although the dynamic is rather different (more moderate), the industry is showing positive signs of change. More management companies are being licensed - not only pension fund management companies, but also insurance companies. The growing level of contributions and the increase in the volume of assets under management are indicators of the development of the sector. This industry's economic and social environment is, to an extent, different to the situation of the insurance business. The absence of mandatory pensions, the lack of an active capital market/stock exchange, financial weakness in various population sectors and the absence of a suitable tax regime are among the factors that contribute to this discrepancy. It is expected that there will be developments in these areas. Obviously, there will be convergence between this sector and the rest of the financial, banking and insurance sector. The financial year 2013 closed with 7 licensed management companies, of which only 5 are operating (four pension fund management companies and one insurance company). There are two more pension fund management companies whose licensing arrangements were completed in Pension Fund Management Companies Nº Entity Type Certificate No. Issue date 1 Gestão de Fundos, S.A. Pension Fund Management Company 01/ISS/MF/99 12 January AAA Pensões, S.A. Pension Fund Management Company 02/ISS/MF/01 01 February Fénix Pensões, S.A Pension Fund Management Company 03/ISS/MF/04 03 September BESAACTIF, S.A. Pension Fund Management Company 04/ISS/MF/09 16 July ENSA - SEGUROS DE Angola, S.A. Insurance Company 01/ISS/MF/02 06 December NOSSA - SEGUROS, S.A. Insurance Company 03/ISS/MF/05 02 April GLOBAL - SEGUROS, S.A. Insurance Company 06/ISS/MF/05 02 June Angola PREV., S.A. Pension Fund Management Company 05/ARSEG/MF/14 23 April SONANGOL Life, S.A. Pension Fund Management Company 06/ARSEG/MF/14 23 June 2014 Source: ARSEG ARSEG PwC 123

124 Insurance and Pension Funds Market Nr of management companies and amount of pension funds managed (figures in Kwanza) Nº Amount under management Nº Amount under management Nº Amount under management Insurance companies Pension Fund Management Companies Management Companies Source: Financial Statements of Management Entities and Pension Funds, provided by ARSEG. For pension funds under management, at the end of financial year 2013, 28 funds were identified, of which 10 were open and 18 were closed. The proportion of closed funds is significantly higher. This is the result of the economic and social environment in the country. The establishment/ creation of these instruments is triggered by entities with this specific need, usually companies, and not as a response to mass demand. 50% Throughout the period under review there was a significant increase, of about 50%, in the value of assets under management. Management companies ranking (figures in Kwanza) Entity Type Amount under management Market share Amount under management Amount under management ENSA Seguros Insurance company % Gestão de Fundos Management company % AAA Pensões Management company % Fénix Management company % BESAACTIF Management company % Source: Financial Statements of Management Entities and Pension Funds, provided by ARSEG. Ranking of management companies Closed Pension Funds only (figures in Kwanza) Entity Type Amount under management Market share Amount under management Amount under management ENSA Seguros Insurance company % Gestão de Fundos Management company % AAA Pensões Management company % Fénix Management company % Total Closed Pension Funds Source: Financial Statements of Management Entities and Pension Funds, provided by ARSEG. 124 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

125 Insurance and Pension Funds Market Ranking of management companies Open Pension Funds only (figures in Kwanza) Entity Type Amount under management Market share Amount under management Amount under management ENSA Seguros Insurance company % 0 0 Gestão de Fundos Management company % AAA Pensões Management company % BESAACTIF Management company % Total Open Pension Funds Source: Financial Statements of Management Entities and Pension Funds, provided by ARSEG. Geographical distribution of the branch network by management entity Cabinda 3 (5%) The geographical distribution of the branch network is still rather limited for pension fund management companies. Most agencies are owned by insurance companies. Zaire 2 (3%) Uige 2 (3%) Bengo 3 (5%) Kwanza Norte 2 (3%) Luanda 18 (31%) Kwanza Sul 2 (3%) Malange 3 (5%) Lunda Norte 2 (3%) Lunda Sul 2 (3%) Benguela 5 (8%) Huambo 3 (5%) Bié 2 (3%) Moxico 2 (3%) Huila 2 (3%) Namibe 2 (3%) Cunene 2 (3%) Cuando Cubango 2 (3%) Source: Websites of management entities, consulted in January 2015 ARSEG PwC 125

126 Insurance and Pension Funds Market 2. Contributions (figures in Kwanza millions) Open Pension Funds Closed Pension Funds Total of contribution Source: Financial Statements of Pension Funds, provided by ARSEG. The overall level of contributions increased by about 3% in the 3-year period under review. However, the trend was not constant as 2012 recorded a decrease (of about 35%). More detailed analysis, of open and closed pension funds, shows that over these three years there was a gradual decline in the level of contributions to open pension funds, while closed funds, despite the 2012 decrease, showed significant overall growth (of about 11%). + 90% Over 90% of the total proportion of contributions was concentrated in closed pension funds. 126 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

127 Insurance and Pension Funds Market 3. Evolution of pensions, accrued capital and repayments 66 Open Pension Funds (Kwanza millions) 302 Closed Pension Funds (Kwanza millions) Total (Kwanza millions) Pensions and accrued capital Repayments Source: Financial Statements of Pension Funds, provided by ARSEG. The pension fund business grew during the 3-year period, leading to a greater volume of assets under management, higher amounts of contributions and, of course, pensions paid, accrued capital and repayments. During the three years, the volume of pensions, accrued capital and repayments grew by about 70%, most notably in closed pension funds, which represent the largest share of the business. ARSEG PwC 127

128 Insurance and Pension Funds Market 4. Fees Total fees (figures in Kwanza millions) Type of commissions Management commissions 98,28% 97,16% 99,98% Performance commissions 1,37% 2,82% 0,00% Subscription commissions 0,00% 0,00% 0,01% 1.153, ,3 Brokerage commissions 0,03% 0,02% 0,01% Transfer commissions 0,01% 0,00% 0,00% 1.005,7 Bank commissions 0,31% 0,01% 0,00% Grand total 100,00% 100,00% 100,00% (figures in thousand Kwanza) Type of commissions Type of Pension Funds Source: Financial Statements of Pension Funds, provided by ARSEG. Management commissions Total Management commissions Performance commissions Total Performance commissions Subscription commissions Total Subscription commissions Brokerage commissions Total Intermediary commissions Transfer commissions Open Closed Open Closed Open Closed Open Closed Open Closed Total Transfer commissions Bank commissions Open Closed Total Bank commissions Total commissions Source: Financial Statements of Pension Funds, provided by ARSEG. The trend in the commissions charged by fund managers was not very consistent throughout the 3-year period under review. Overall, commissions levels decreased by 13% between 2011 and 2013, with a reduction of about 2% between 2011 and 2012 and a decrease of 11% between 2012 and Despite the increase in the value of the assets under management, comissions levels did not evolve in a corresponding manner, but recorded a decrease. Management commissions represent almost all of the commissions charged. Analysis of commission levels, in percentage and overall terms, shows a reduction of 0.9 % between 2011 and In 2011 the fees charged accounted for 2.3% of the value of assets under management, while in 2013, it was 1.4%. Another noteworthy aspect relates to the commissions charged in open and closed funds, with open funds charging higher rates. 128 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

129 Insurance and Pension Funds Market Management fees' rate Open Pension Funds (Kwanza millions) Closed Pension Funds (Kwanza millions) Total (Kwanza millions) 2,7% 2,4% 2,5% 2,3% 1,6% 1,3% 2,3% 1,7% 1,4% Management fees Amounts managed Fees' rate Source: Financial Statements of Pension Funds, provided by ARSEG. 5. Investment portfolio The structure of Pension Fund assets portfolio is very conditioned by the situation in the country. The absence of an active capital market, limitations on foreign investment and the weakness of the national currency are some of the factors that undermine optimum investment conditions. Over the three years under review the largest share of investment was in bank assets, particularly in term and sight deposits. These investments recorded a downward trend, but in 2013 they were still 60% of the overall portfolio. Investment in real estate has been gradual, accounting for 9% of total investment in 2011 and 13% in With regard to investment in variable and fixed income securities, the trend was uneven, i.e. between 2011 and 2013 fixed income predominated with disinvestment in variable income securities. 13% Investment in real estate has been gradual, accounting for 9% of total investment in 2011 and 13% in ARSEG PwC 129

130 Insurance and Pension Funds Market It is expected that there will be a change in this area in the near future and, of course, development in the quality and diversity of investments, as a result of regulation of the sector, the introduction of a capital market/ stock exchange, the creation of investment incentives and tax changes that are suitable for this sector, among other aspects. Details of the investment portfolio (figures in Kwanza) Cash % % % Property % % % Variable income securities % % % Fixed income securities % % % Total % % % Source: Financial Statements of Pension Funds, provided by ARSEG. (figures in Kwanza) Sight deposits % % % Term deposits % % % Cash % % % Shares % % % Bonds 0 0% % % Property % % % Loans % % % Certificates of deposit % % % Participation units in Securities Investment Funds 0 0% 0 0% 0 0% Participation units in Real Estate Investment Funds % % % Bond Funds 0 0% % % Capitalisation Funds 0 0% % % Alternative investments - UBS 0 0% % % Equity funds 0 0% 0 0% % Mutual funds 0 0% 0 0% % Financial Investments % % % Total % % % Source: Financial Statements of Pension Funds, provided by ARSEG. 130 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

131 Insurance and Pension Funds Market Profitability In terms of profitability, the global asset portfolio recorded a growth of around 6 % between 2012 and The growth was recorded in the closed pension funds, which represent the bulk of the investment (about 95%). The open pension funds recorded a 2% drop in profitability between 2012 and (figures in Kwanza) Revenue Realised Gains Profitability Average assets* % Profitability 11% 4% Revenue from invested assets (figures in Kwanza) Open PFs Revenue Realised Gains Profitability Average assets* % Profitability 3% 5% Closed PFs Revenue Realised Gains Profitability Average assets* % Profitability 11% 4% Source: Financial Statements of Pension Funds, provided by ARSEG. * average assets were calculated by adding total assets for the year in question to total assets for the previous year and dividing by two. ARSEG PwC 131

132 Insurance and Pension Funds Market 6. GDP penetration rate GDP (Kwanza millions) Total amounts managed (Kwanza millions) Total contributions (Kwanza millions) Angola Portugal Total amounts managed/gdp Total contributions/gdp ,49% 0,60% 0,60% 0,11% 0,06% 0,09% Angola 7,51% 8,53% 8,85% 55,9% 57,7% 36,8% Portugal Source: Financial Statements of Pension Funds, provided by ARSEG, Sigma 3 of Swiss Re and ISP. Note: The Portugal amounts were calculated based on the Euro-Kwanza exchange rate at 31 December of the year to which they relate. Like the insurance industry, the pension funds sector has a low penetration index in the wealth produced by the country. Over the period under review, this rate was between 0.1% in 2011 and 0.09% in 2013, when analysed from the perspective of contributions. In terms of amount of assets, the rate was between 0.49% in 2011 and 0.6% in This shows that the sector is still relatively marginal in Angolan society, a situation which is clearly reflected in the limited number of pension fund management companies and pension funds commercialised. It is expected that there will be gradual development in this sector, as the existing socio-economic environment also undergoes progressive change. There will obviously be convergence towards levels closer to more mature markets. 132 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

133 Insurance and Pension Funds Market 7. Density Index With regard to the density index, which expresses the amount spent by each citizen in pension fund contributions; there was a decrease of about 3 % in the 3-year period. However, the trend in this indicator was not constant and there was a marked decrease in Compared to the pension fund sectors of more socially and economically mature countries, Angola still records low levels of contributions. The trend is for this level of converge towards higher levels, as the population becomes more aware of the importance of saving and insurance and as financial conditions in society improve. There was a decrease of about 3 % points in the 3-year period. Density index of Pension Funds (Contributions/Resident population) Contributions (Kwanza millions) Resident Population (millions) Contributions/Resident Population , ,6 20, ,5 10,5 10, Portugal Angola Portugal Angola Portugal Angola Source: Financial Statements of Pension Funds, provided by ARSEG, Sigma 3 of Swiss Re and ISP. Note: The Portugal amounts were calculated based on the Euro-Kwanza exchange rate at 31 December of the year to which they relate. ARSEG PwC 133

134 8 Numbers and indicators Insurance Companies * 1 Solvency provided by Insurance Companies in Annual Reports or estimate calculated by PwC based on the accounts of Insurance Companies when not available in the Annual Reports. Description ENSA 2013 AAA Seguros 2013 Investments, bank deposits and cash Outward reinsurance underwriting provisions Premiums for collection Others Total Assets Mathematical provision for life insurance Mathematical provision for workplace accidents Provision for unexpired risks Provision for temporary incapacity of workplace accidents Provision for outstanding claims Technical Provisions Underwriting provisions Others Total Liabilities Company Equity Total Liabilities + Company Equity Gross premiums issued Claims costs Variation in underwriting provisions Gross Underwriting Result Intermediaries fees Operating Costs Underwriting Result Reinsurance premiums Fees and share of reinsurance results Reinsurance payments Variation in reinsurance underwriting provisions Reinsurance result Net Reinsurance Underwriting Result Variation in non-underwriting provisions Financial result Other gains/losses Pre-tax Income Income tax for the financial year Net Profit for the Year Solvency* 1 131% 92% Ratios Claims ratio 45% 13% Fees ratio 3% 0% Expenses ratio 32% 3% Combined ratio 81% 16% Operating ratio 103% 97% Coverage ratio 40% 7% Ceding rate of reinsurance premiums 9% 81% Return on assets 1% 0% Return on investments 4% 0% Return on Equity 7% 0% Return on premiums 3% 0% 134 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

135 (figures in Kwanza) NOSSA 2013 GA 2013 A Mundial Seguros Global Seguros 2013 Garantia 2013 Confiança 2013 Tranquilidade 2013 Triunfal Seguros 2013 Total % 81% -63% 250% 163% 4554% 48% 1906% 114% 34% 20% 46% 30% 15% 44% 21% 10% 30% 3% 4% 7% 2% 20% 1% 7% 0% 3% 44% 11% 37% 31% 45% 528% 22% 38% 22% 81% 35% 90% 63% 80% 573% 50% 47% 55% 103% 98% 82% 97% 105% 608% 100% 81% 99% 36% 12% 61% 14% 13% 0% 18% 0% 25% 38% 79% 3% 55% 6% 0% 32% 0% 45% 2% 1% 1% 1% -4% -39% 0% 0% 1% 4% 0% 2% 0% 0% 0% 2% 0% 3% 11% 13% -4% 4% -7% -48% -1% 0% 5% 4% 2% 1% 2% -4% -516% 0% 2% 2% ARSEG PwC 135

136 Numbers and indicators Insurance Companies Description ENSA 2012 AAA Seguros 2012 NOSSA 2012 GA 2012 Investments, bank deposits and cash Outward reinsurance underwriting provisions Premiums for collection Others Total Assets Mathematical provision for life insurance Mathematical provision for workplace accidents Provision for unexpired risks Provision for temporary incapacity of workplace accidents Provision for outstanding claims Underwriting Provisions Non-underwriting provisions Others Total Liabilities Company Equity Total Liabilities + Company Equity Gross premiums issued Claims costs Variation in underwriting provisions Gross Underwriting Result Intermediaries' fees Operating Costs Underwriting Result Reinsurance premiums Fees and share of reinsurance results Reinsurance payments Variation in reinsurance underwriting provisions Reinsurance result Net Reinsurance Underwriting Result Variation in non-underwriting provisions Financial result Other gains/losses Profit Before Taxation Income tax for the financial year Net Income for the Year Solvency* 1 243% 75% 117% 57% Ratios Claims ratio 42% 3% 33% 10% Fees ratio 4% 0% 3% 5% Expenses ratio 25% 6% 42% 12% Combined ratio 72% 9% 78% 27% Operating ratio 99% 93% 94% 96% Coverage ratio 25% 8% 43% 12% Ceding rate of reinsurance premiums 9% 74% 40% 77% Return on assets 1% 0% 3% 4% Return on investments 4% 0% 6% 0% Return on Equity 4% 1% 15% 22% Return on premiums 3% 0% 6% 3% * 1 Solvency provided by Insurance Companies in Annual Reports or estimate calculated by PwC based on the accounts of Insurance Companies when not available in the Annual Reports. 136 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

137 Numbers and indicators (figures in Kwanza) A Mundial Seguros Global Seguros 2012 Garantia 2012 Confiança 2012 Universal 2012 Tranquilidade 2012 Triunfal Seguros 2012 Total % 248% 499% 1339% 109% 249% 1415% 164% 40% 49% 10% 2% 16% 18% 10% 24% 9% 2% 16% 0% 4% 5% 0% 3% 54% 32% 30% 59% 47% 95% 36% 20% 104% 83% 55% 61% 68% 118% 46% 47% 86% 102% 95% 96% 130% 168% 80% 97% 45% 28% 2% 0% 12% 17% 0% 19% 5% 53% 6% 0% 52% 27% 0% 44% 19% 1% 2% 1% -23% -57% 1% 1% 2% 3% 0% 0% 0% 0% 0% 3% -63% 4% 2% 1% -72% -292% 1% 3% 17% 2% 4% 4% -30% -268% 3% 2% ARSEG PwC 137

138 Numbers and indicators Insurance Companies Description ENSA 2011 AAA Seguros 2011 NOSSA 2011 GA 2011 Investments, bank deposits and cash Outward reinsurance underwriting provisions Premiums for collection Others Total Assets Mathematical provision for life insurance Mathematical provision for workplace accidents Provision for unexpired risks Provision for temporary incapacity of workplace accidents Provision for outstanding claims Technical Provisions Non-underwriting provisions Others Total Liabilities Company Equity Total Liabilities + Company Equity Gross premiums issued Claims costs Variation in underwriting provisions Gross Underwriting Result Intermediaries' fees Operating Costs Underwriting Result Reinsurance premiums Fees and share of reinsurance results Reinsurance payments Variation in reinsurance underwriting provisions Reinsurance result Net Reinsurance Underwriting Result Variation in non-underwriting provisions Financial result Other gains/losses Profit Before Taxation Income tax for the financial year Net Profit for the Year Ratios Claims ratio 54% 3% 33% 14% Fees ratio 5% 0% 1% 3% Expenses ratio 25% 5% 30% 16% Combined ratio 84% 8% 64% 33% Operating ratio 99% 103% 103% 93% Coverage ratio 61% 6% 51% 16% Ceding rate of reinsurance premiums 11% 91% 44% 71% Return on assets 1% 0% 0% 2% Return on investments 7% 0% 5% 0% Return on equity 3% 5% 1% 16% Return on premiums 3% 0% 0% 2% 138 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

139 Numbers and indicators (figures in Kwanza) A Mundial Seguros 2011 Global Seguros 2011 Garantia 2011 Universal 2011 Tranquilidade 2011 Total % 31% 10% 8% 3% 27% 5% 2% 12% 0% 0% 3% 36% 46% 26% 50% 32% 18% 66% 78% 47% 57% 35% 47% 104% 93% 92% 148% 113% 100% 31% 21% 3% 9% 3% 32% 1% 34% 10% 67% 10% 50% -6% 3% 3% -10% 0% 1% 0% 0% 0% 0% 0% 4% 12% 8% 4% -13% 0% 3% -4% 5% 5% -48% -15% 1% ARSEG PwC 139

140 Numbers and indicators Pension Fund Management Companies 2013 Assets Description AAA Pensões Gestão de Fundos Fénix Besaactif Total Tangible fixed assets Intangible fixed assets Investments in subsidiaries and associates Other financial assets Other non-current assets Accounts receivable Receivables - current account Group Companies Other accounts receivable Cash and Deposits Accruals Income receivable Total Assets Company Equity Capital Fluctuation in values Reserves + Retained earnings Reserves for special purpose Income for the year Total Equity Liabilities Supplies Provisions for probable liabilities Accounts payable Payables - current account Government and other public bodies Advances from Customers Group Companies Other current liabilities Charges payable Total Liabilities Total Equity + Liabilities Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

141 Numbers and indicators (figures in Kwanza) 2013 Income statement Description AAA Pensões Gestão de Fundos Fénix Besaactif Total Services rendered Other Operating Income Total Income Staff Costs Depreciation for the year Other operating costs and losses Taxes Third party supplies and services Total Costs Operating results General financial Income and gains General financial costs and losses Financial result Income from subsidiaries and associates Costs of subsidiaries and associates Results of subsidiaries Other non-operating income and gains Other non-operating costs and losses Non-operating Income Net Income from Current Activities Extraordinary income and gains Extraordinary Losses and Costs Extraordinary Income Profit Before Taxation Income Tax Net Profit for the Year Solvency* 1 271% 1086% 168% -79% Ratios Return on assets 0,46% 23,63% 0,81% -173,81% 15,45% Return on Equity 1,96% 30,68% 4,51% 15,20% 27,23% Return on management charges 1,26% 162,85% 9,77% -199,99% 81,73% Pension Funds under management - No Pension Funds under management - Value Closed Pension Funds Open Pension Funds Intermediaries' fees 4,22% 2,89% 0,95% 1,53% 2,98% * 1 Solvency provided by Insurance Companies in Annual Reports or estimate calculated by PwC based on the accounts of Insurance Companies when not available in the Annual Reports. ARSEG PwC 141

142 Numbers and indicators Pension Fund Management Companies 2012 Assets Description AAA Pensões Gestão de Fundos Fénix Besaactif Total Tangible fixed assets Intangible fixed assets Investments in subsidiaries and associates Other financial assets Other non-current assets Accounts receivable Receivables - current account Group Companies Other accounts receivable Cash and Deposits Accruals Income receivable Total Assets Company Equity Capital Fluctuation in values Reserves + Retained earnings Reserves for special purpose Income for the year Total Equity Liabilities Supplies Provisions for probable liabilities Accounts payable Payables - current account Government and other public bodies Advances from Customers Group Companies Other current liabilities Charges payable Total Liabilities Total Equity + Liabilities Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

143 Numbers and indicators (figures in Kwanza) 2012 Income statement Description AAA Pensões Gestão de Fundos Fénix Besaactif Total Services Rendered Other Operating Income Total Income Staff Costs Depreciation for the year Other operating costs and losses Taxes Third party supplies and services Total Costs Operational results General financial income and gains General financial losses and costs Financial result Income from subsidiaries and associates Costs of subsidiaries and associates Results of subsidiaries Other non-operating income and gains Other non-operating costs and losses Non-operating Income Net Income from Current Activities Extraordinary Income Extraordinary Losses and Costs Extraordinary Income Profit Before Taxation Income Tax Net Profit for the Year Solvency* 1 288% 1396% 227% -69% Ratios Return on assets 0.16% 25.27% 1.11% % 8.55% Return on Equity 1.71% 36.00% 6.25% 73.39% 27.83% Return on management charges 1.36% % 14.93% % 70.88% Pension Funds under management - No Pension Funds under management - Value Closed Pension Funds Open Pension Funds Intermediaries' fees 3,64% 2,59% 0,95% 1,41% 2,81% * 1 Solvência disponibilizada pelas Seguradoras nos Relatórios e Contas ou estimativa calculada pela PwC com base nas contas das Seguradoras quando a mesma não estava disponível nos Relatórios e Contas. ARSEG PwC 143

144 Numbers and indicators Pension Fund Management Companies 2011 Assets Description AAA Pensões Gestão de Fundos Fénix Besaactif Total Tangible fixed assets Intangible fixed assets Investments in subsidiaries and associates Other financial assets Other non-current assets Accounts receivable Receivables - current account Group Companies Other accounts receivable Financial investments Cash and Deposits Accruals Income receivable Total Assets Company Equity Capital Fluctuation in values Reserves + Retained earnings Reserves for special purpose Income for the year Total Equity Liabilities Supplies Provisions for probable liabilities Accounts payable Payables - current account Short-term loans Government and other public bodies Advances from Customers Group Companies Other current liabilities Charges payable Total Liabilities Total Equity + Liabilities Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

145 Numbers and indicators (figures in Kwanza) 2011 Income statement Description AAA Pensões Gestão de Fundos Fénix Besaactif Total Services Rendered Other Operating Income Total Income Staff Costs Depreciation for the year Other operating costs and losses Taxes Third party supplies and services Total Costs Operating results General financial income and gains General financial losses and costs Financial result Income from subsidiaries and associates Costs of subsidiaries and associates Results of subsidiaries Other non-operating income and gains Other non-operating costs and losses Non-operating Income Net Income from Current Activities Extraordinary Income Extraordinary Losses and Costs Extraordinary Income Profit Before Taxation Income Tax Net Profit for the Year Ratios Return on assets 0,27% 16,45% 1,78% -172,30% 4,16% Return on Equity 2,68% 36,67% 10,76% 220,65% 21,43% Return on management charges 2,02% 112,42% 24,40% -2327,92% 31,84% Pension Funds under management - No Pension Funds under management - Value Closed Pension Funds Open Pension Funds Intermediaries' fees 3,84% 5,45% 1,13% 1,20% 3,73% ARSEG PwC 145

146 9 PwC opinions Carlos Maia Assurance Partner of PwC Responsible for the Insurance Sector The importance of generating reliable management information in the insurance sector There are several opinions on the greater or lesser relevance of the different functional areas of organizations. Regarding the insurance sector, there are those who believe that retail should be prioritized, as without the placement of insurance on the market insurance companies cannot survive; others hold that the technical area is critical, as it designs and implements the supply of insurance products. Others highlight the importance of human resources to encourage a motivated workforce in sales and production, or even finances, which manages the financial inflows generated at the start of the business cycle, the reverse of the practice in most businesses. All areas therefore have their own importance and should be considered as the parts of a whole, which is the insurance company. 146 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

147 Notwithstanding the importance of the different functional areas, management information, which cuts across all areas of insurance, will undoubtedly be crucial for appropriate management of the functional areas themselves. Furthermore, its importance is not restricted to internal matters, as it is also of relevance to external users (stakeholders). Internally, the different areas of the insurance company are responsible for obtaining, organizing and providing information to support management and decision-making by the relevant officers. The information exists and is used by insurance company managers. It may be more or less sophisticated but it provides vital data for diligent managers who seek to achieve sustainable objectives in an efficient / optimal manner. We are all aware of the vital importance of financial, commercial, technical, HR and risk management information, among others, for insurers, policyholders/beneficiaries, regulators, investors, and others. Whether it is the policyholder who is trying to assess the soundness of the insurance company selling the personal and/or property protection, the reinsurer seeking credible references about its potential partner or the regulator trying to ensure that insurers operate in a robust way, in the interests of the beneficiaries of protection and property insurance, there is a wide range of users of management information, so it needs to be reliable and must provide transparency and credibility. Now, I think we can all agree that the currently available management information on the Angolan insurance industry does not meet the requirements of the various stakeholders. In particular, current models of financial and prudential reporting do not yet comply with international best practices. Regardless of the management information that may be produced by insurers, the information that is required and publicized it is still relatively poor and somewhat out of step with a situation which is changing and becoming more sophisticated. Insurance is a dynamic and growing sector. It is legitimate, therefore, to ask for more and better information on the sector. There is also a mismatch between, for example, the qualitative level of financial reporting of European insurers, or even South Africa, and that of Angola. Improvements are urgently needed, for the good of the various stakeholders. This development must engage all market players. They can all contribute to improvement. It will be crucial, in particular, to review the financial reporting publication process of insurance companies to ensure proper timing, so that reports are relevant to their users. Improving financial and prudential reporting processes should be accompanied by more and better qualified human resources and reliable information systems that respond to new requirements. There is no time to lose, with regard to the adoption of international accounting standards, prudential reports based on risk management (Solvency 2) and the reform of the relevant tax laws. All of us are, therefore, called to make our contribution so that we produce reliable management information which empowers the sustainable development of the Angolan insurance market. Insurance is a dynamic and growing sector. It is legitimate, therefore, to ask for more and better information on the sector. ARSEG PwC 147

148 PwC opinions The distribution of insurance in Angola André Santos Ferreira Advisory Director of PwC Responsible for Financial Services Sector The Angolan insurance sector has experienced remarkable growth and change over the past decade. The number of insurers has grown significantly and their presence in the provinces has been increasing. Despite positive change in insurance penetration, there is still a long way until product diversity, competition and widespread customer access become a reality. Supply and demand in the Life Business and in certain non-life products are still clearly very limited. Without doubt, making insurance products generally available to the population and companies is a difficult task which, because it relies on traditional methods, can be time consuming and requires substantial investment. However, Angola can and should benefit from the accumulated knowledge and experience of other markets, as is the case in other sectors. The insurance sector will necessarily have to find a way to reach more people and, at the same time, make the public aware of the benefits of the activity for the economy. To this end, there are certain tried and tested instruments which may help to achieve this objective, with a reasonable level of investment. First, the search for synergies with other financial sector entities with a much greater presence Banks. For Angolan insurers the Bancassurance channel is not only an opportunity to establish a presence rapidly throughout the country but also to raise funds from an emerging middle class by providing life products. Second, the use of electronic platforms, taking advantage of the high levels of penetration of mobile phones, smartphones and tablets in the country. These platforms are highly scalable, with a low marginal cost and they make it possible to deliver products simultaneously to end customers and distributors. These are, therefore, two ways that can bring about a profound change in the situation for the Angolan insurance sector. 148 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

149 PwC opinions Despite positive change in insurance penetration, there is still a long way to go until product diversity, competition and widespread customer access become a reality. And, while the Bancassurance channel is limited insofar as the number of partners are restricted, all potential customers and partners can be reached through the use of new technologies. The creation of electronic platforms, on the one hand, enables interaction with the customer base and, secondly, it provides the potential for major expansion in the number of insurance dealers, whether they are affinities (e.g. orders and associations or car dealerships) or a category of insurance agents (that does not currently exist). The creation of networks of intermediaries can be a way for companies to establish a greater presence throughout the country. Although the development of this channel may represent an investment of some importance, it undoubtedly has a significant medium and longterm return for the sector and ensures proximity and knowledge of customers that the remaining channels will find more difficult to ensure. In short, the insurance sector has come a long way but still has a long way to go before it approaches its potential. It is essential for the development of the Angolan economy to go down this path, as insurance is traditionally a driving force in the economic development of societies. It is important for each company to decide how it plans to position itself in the market and contribute to the development of the country. ARSEG PwC 149

150 PwC opinions Augusto Paulino Tax Director of PwC in Angola Financial Services Group Angolan tax reform, new behaviours and expectations in the insurance and pension funds sector In tax matters, 2014 was marked by the publication of various acts that brought significant changes to the tax system of the country. These initiatives are part of the ongoing tax reform and seek to adapt tax legislation to Angola s current socio-economic situation and to existing constitutional principles, by reshaping the taxation of companies and individuals and the relationship between taxpayers and what is now called the General Tax Administration. These recent changes represent significant steps in view of the development of the Angolan tax system, but they are of a general nature, applying to all taxpayers and business sectors. Although certain measures that are more targeted towards the financial sector have been introduced, very much in line with the capital market development plan, these measures have resulted primarily in more favourable tax treatment for Investment Income Tax (IAC) on income from investment in government bonds and also in the creation of a specific tax regime for Collective Investment Undertakings (CIU). There are, therefore, legitimate expectations, among operators in the insurance and pension funds sector, that changes in tax legislation can go further in order to accommodate the specific characteristics of the sector and, at the same time, contribute to the development of its activities. Beyond certain aspects more related to the taxation of the insurance companies themselves, which could be subject to additional regulation or clarification, it will be even more important to ascertain whether or not fiscal policy can somehow influence consumer behaviour. In a context in which it is intended to raise awareness about saving and why it is needed, we could think, for example, of the contribution that the introduction of tax rules that are better targeted at the insurance industry might have on long-term saving, saving for retirement or other contingencies (e.g. inability to work or to meet expenses such as the maintenance and/or education of dependants). The introduction of tax incentives for long-term investments would also be a way of encouraging saving. This could be done, for example, by more favourable rates of Investment Income Tax, as was recommended for income from government securities traded in the regulated market. The introduction of a more favourable tax regime could even trigger the release in the insurance market of so-called life insurance saving products - insurance contracts guaranteeing the beneficiary a payment by the due date of the contract, corresponding to the capital invested plus the income accrued by the investment during the contract term. 150 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

151 PwC opinions Similarly, solutions might be developed to encourage the creation of insurance products to supplement pensions - i.e. products that guarantee the payment of a certain amount when people reach retirement age and supplement their Security Social payments. Given the social nature of these solutions, it is appropriate to grant some benefits to companies which underwrite products of this type for employees. In addition to all the challenges currently facing the sector, from the economic environment to supply solutions and the regulatory framework, there will also be room for change in taxation arrangements. On this matter, it would also be of use to society to create specific rules for pension funds to encourage their use by private individuals, but mainly by companies, on behalf of their employees (with benefits guaranteed only at retirement age or in the event of disability/incapacity for work). In the same vein, and as with the tax regime recently created for IUCs, more favourable taxation of pension funds could be considered in Industrial Taxation. Other benefits/exemptions enjoyed by IUCs in IAC (Investment Income Tax), IPU (Property Tax), Stamp Duty and Sisa (property transfer tax), could also be extended to pension funds. This would make sense because of the similar features of these instruments, as autonomous assets managed by properly qualified professional bodies. Moreover, if insurers and pension funds are able to attract more resources and savings, this would contribute decisively to enhancing the role of these entities as institutional investors in the capital market, including through investment in government debt. In addition to all the challenges currently facing the sector, from the economic environment to supply solutions and the regulatory framework, there will also be room for change in taxation arrangements. ARSEG PwC 151

152 10 Scope Scope and Methodology The documented study includes two parts, one qualitative and the other quantitative. The first part involved a consultation exercise with the sector s operators - through interviews or inviting them to send in comments or articles. The second part covers an analysis of the business figures and indicators based on financial information on insurers, pension fund management companies and pension funds operating in Angola. Financial information was also collected from other sources, providing a more comprehensive analysis that addressed other markets beyond Angola. This study focused on the years 2011, 2012 and Challenges and opportunities in the Angolan Insurance and Pension Funds Sector

153 Methodology The approach used in the qualitative part was based on the individual, faceto-face interviews and the compilation of comments/articles on the theme of Challenges and Opportunities of the Insurance and Pension Funds Sector. For the interviews a standard script with predefined questions was prepared and sent to each entity. The following phase consisted of scheduling the interviews. These were recorded, transcribed and then delivered for validation to each interviewee. The work undertaken was restricted to aggregation and conversion of the recordings into the text of this document. The content is the entire responsibility of the interviewees. 14 entities participated in the interview process (they are identified in section 4). Other comments/articles included in the study are technical papers on themes related to the insurance and pension fund industry. Regarding the quantitative approach, the study includes an analysis derived from the compilation of financial information, made available by ARSEG, on insurance companies, pension fund management companies and pension funds operating in Angola. Financial information was also obtained from various sources, some local (e.g. BNA (Bank of Angola), INE (National Institute of Statistics) of Angola, the Ministry of Planning and Territorial Development Angola, ACETRO), others international (e.g. Sigma-Swiss Re Economic Research, the International Monetary Fund African Economic Outlook, Bloomberg, World Energy Outlook: IEA, UN, Statista -The Statistics Portal, Oxford Economics, World Bank, BPI Research, The Economist Intelligence Unit, Trading Economics, World Trade Organization, International Trade Centre), to enable a comprehensive analysis, where applicable, of Angola and other international markets. Overall, the analysis period addressed in this study covers the years 2011, 2012 and Where the analysis refers to a different period, this is identified. Moreover, financial information for the entities in question was disclosed on an individual and consolidated basis. The consolidated information published in this study was derived from arithmetical addition of individual information obtained and did not involve any particular consolidation exercise, based on generally accepted accounting practices. The nature of the quantitative part involves an aggregation and presentation of the financial information available, with considerations formulated based on the factual reality it reflects. This process did not involve a validation and/or audit of the existing financial information. The financial information used and presented included a range of Insurance and Pension Fund Management Companies operating in Angola. Where this study makes projections and/or estimates of values, due to lack of available financial information and/or where it is judged that this is of more value to the reader, they are identified. For the reasons mentioned we cannot guarantee the completeness of the financial information in this study (for all market entities) and we cannot guarantee that it is completely reliable. However, it is not expected that there will be any changes that may substantially alter its conclusions. The financial information used and presented included a range of Insurance and Pension Fund Management Companies operating in Angola. These are identified in chapter 7 of the report. This document is of a general nature and is purely for information purposes. It is not intended for any particular entity or situation and is not a substitute for suitable professional advice. ARSEG and PwC are not liable for any damages or losses resulting from decisions based on the information presented in this study. ARSEG PwC 153

154 11 This Final considerations study is just the first of many that ARSEG will produce hereafter, as per its remit and qualifications. This study lays out the foundations for the study of many other challenges that are still lacking in the Insurance and Pension Funds market, in order to provide investors, policyholders, reinsurers, brokers and customers with market information. We are aware that this study cannot possibly cover all the relevant information, but we also believe that it will make a significant contribution to filling the gap that still exists in this sector. ARSEG thanks all its employees who were engaged in this demanding task and reiterates its commitment to the market to continue to investing in the development of the National Financial System, through various initiatives. 154 Challenges and opportunities in the Angolan Insurance and Pension Funds Sector